American Media Expected To Keep Growing ­ And Borrowing

American Media (AMI) dominates the tabloid business and its supremacy in this niche area of the media market is built on a debt-financed acquisitive growth strategy. AMI is acquiring Weider Publications for $350 million and Moody's Investors Service expects the publisher to continue to pursue debt-financed acquisitions.

Moody's reflects this outlook in its Ba3 rating of AMI's $140 million add-on "C" loan in relation to the Weider transaction. "It's not a fast grower," said Dominic Ward, senior associate at Moody's , explaining that the tabloid revenue line is not a quick profit booster, therefore the Weider deal might not be the last in AMI's efforts to amplify cash flow. "We think it's something they're interested in doing," Ward noted, speaking to further possible acquisition plans from the company, which could consequently add more debt to its present $750 million (pre-acquisition) total. Calls to John Miley, AMI's cfo, were not returned.

The add-on rating also reflects AMI's moderate cash flow coverage of interest after capital expenditures. AMI's debt-to-EBITDA figures are about 6.3 times before considering acquisition synergies. Moody's also considers AMI's deteriorating circulation into the rating. AMI publishes such weeklies as The National Enquirer and Weekly World News. Furthermore, the ratings reflect AMI's vulnerability to the advertising cycle, the challenges associated with incorporating acquired companies and exposure to paper price volatility.

To Boca Raton, Fl.-based AMI's credit, however, "They are the tabloid company," Ward stated, noting its leadership position. AMI also holds a prominent position in advertising and subscription-based fitness magazines. This, compounded with the Weider transaction, will likely bring good results, he added, explaining that Weider's publications have grown over the past five years.