Muzak Holdings, a portfolio company of ABRY Partners, expects to be in violation of its bank loan covenants at the end of the third quarter because of expected restructuring costs. According to Standard & Poor's, Muzak will need to further amend the bank financial covenants that were loosened in May to avoid a covenant default and preserve the revolver, which is critical given its cash flow deficit and lack of other sources of liquidity. Peni Garber, a partner at ABRY and a director of Muzak, did not return calls. Catherine Walsh, Muzak's treasurer, also did not return calls.
In May, the company amended and restated its $95 million credit with lead arrangers Bear Stearns and Lehman Brothers and co-syndication agents Fleet Bank and GE Capital. The new agreement also created a $35 million "A" term loan that repaid $32.7 million of 13% senior discount. Canyon Capital Partners signed the amendment, but a Canyon spokeswoman declined comment.
S&P has lowered its ratings on the provider of subscription music services to B- from B. The ratings are also on credit watch negative. In a release, S&P notes, "The downgrade and credit watch listing are the result of Muzak's continued earnings underperformance and significant concerns about its liquidity."