The success of integrating WorldPages.com Inc. into TransWestern Publishing LLC is key to the credit quality of the San Diego-based yellow pages publisher. Moody's Investors Service has assigned a Ba3 rating to TransWestern Publishing LLC's proposed $300 million secured credit facility partially backing the acquisition, reflecting the risks associated with on-going acquisitive growth. Kendra Smith, v.p., senior analyst at Moody's, believes that "the company has proven themselves to be very effective in integrating previous acquisitions, but in the near-term the situation will be monitored, as this is a very large acquisition for them."
The magnitude of integration failure with this purchase would materially impact credit statistics. In Moody's opinion there is minimal cushion under pro-forma credit statistics to absorb integration errors or operating shortfalls. Acquisitions have resulted in high pro forma financial leverage, modest coverage of interest expense and moderate retained cash as a percentage of total debt, said Smith. Prolonged economic downturn increases the possibility of account churn and credit quality issues posing some risk to revenue stability and working capital, she added.
In support of the rating, TransWestern's historically good record of acquisition and integration is coupled by account diversification and expansive geographic footprint. Customer relations appear to be solid, with approximately 68% of the company's directories being published for over five years and on average are 16 years old. Account retention rates are 76% during 2000 and renewal rates approach 90%.
The loan, which consists of a $65 million revolver, $47.5 million term "A" loan and $187.5 million term "B" is secured by a first lien on all tangible and intangible assets and capital stock of the borrowers and their subsidiaries. The Ba3 reflects the absence of tangible asset coverage. Also confirmed were the B1 senior unsecured issuer rating and the Ba3 senior implied rating. The outlook is negative.