(The following statement was released by the rating agency)
Dec 12 -
-- U.K.-based international publisher of classified directories hibu PLC (hibu) has announced an agreement with the lenders of its 2006 credit facilities to settle all of these lenders' claims.
-- We are therefore raising our long-term corporate credit rating on hibu to 'CC' from 'SD' (selective default).
-- The negative outlook reflects our view of the likelihood of us downgrading hibu to 'D' (default) if it implements a credit-dilutive restructuring or postpones upcoming interest payments on its 2009 facility beyond the fifth business day following the scheduled due date.
On Dec. 12, 2012, Standard & Poor's Ratings Services raised to 'CC' from 'SD' (selective default) its long-term corporate credit rating on U.K.-based international publisher of classified directories hibu PLC (hibu). The outlook is negative.
The upgrade follows hibu's announcement, on Dec. 7, 2012, that it has reached an agreement with the lenders of its 2006 credit facilities agreement to settle all of these lenders' claims. In particular, under this settlement, the 2006 lenders will receive a payment in cash equal to 39% of the total amount outstanding to them under the 2006 facilities agreement. This payment, which we understand hibu made on Dec. 11, 2012, will be the full and final settlement of all the lenders' claims under the 2006 facilities agreement.
hibu is in the process of restructuring its balance sheet with the aim of reducing leverage in a mutually agreeable way with the main stakeholders. The group's decision not to pay upcoming interest and required debt amortization under its 2009 facility agreement, after failing to make a timely payment on the 2006 facility, is in the context of ongoing negotiations for the approval of a consensual restructuring agreement by stakeholders involved. We understand that upcoming payments on the 2009 facility agreement are not due until February 2013.
Under our criteria, we consider the extension of a due payment of interest or principal as tantamount to a default if the payment falls later than five business days after the scheduled due date. (See 'Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings,' published Dec. 23, 2010, on RatingsDirect on the Global Credit Portal). This is irrespective of any grace period stipulated in the debt documentation.
We will follow the progress of hibu's pending debt restructuring over the coming months. If and when hibu emerges from any form of reorganization, we will reassess the ratings, taking into account hibu's business prospects, the factors that precipitated any default, the new capital structure, and any gains the group achieves through the reorganization process.
We assess hibu's liquidity as 'weak' under our criteria. This primarily reflects management's decision to delay upcoming interest and debt amortization payments on its 2009 facility. In view of the continuous deterioration in the business, we believe that the group could breach its covenants if the Nov. 30, 2012, test is not waived (hibu recently agreed an extension with lenders to Nov. 30, 2012, from Sept. 30, 2012).
That said, we note hibu's material cash on balance sheet, some cash flow generation, and the lack of material debt maturities and debt amortization requirements until 2014. The group recently cancelled its GBP75 million undrawn revolving credit facility. A capital restructuring that addresses the above weaknesses and a currently unsustainable leverage could be positive for liquidity and may lead us to reassess hibu's creditworthiness.
The negative outlook reflects our view that if hibu were to postpone the due interest payment on the 2009 facility beyond the fifth business day following the scheduled due date, we would lower our long-term corporate credit rating to 'D' (default).
The negative outlook also takes into account our opinion that hibu's rating momentum is still on a downward trend and that its capital structure is likely to become unsustainable, especially in light of the adverse trading environment. hibu's upcoming debt maturity wall in 2014 and ongoing negotiations with various stakeholders for a balance sheet restructuring lead us to believe that management could implement credit-dilutive restructuring measures, which we would view as tantamount to a default under our criteria.
In view of the continuous pressure on hibu's revenues and profits, and the status of current discussions with the various stakeholders, we believe that an outlook revision to stable is unlikely over the next few months.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Dec. 23, 2010
-- Understanding Standard & Poor's Rating Definitions, June 3, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Upgraded; CreditWatch/Outlook Action
Corporate Credit Rating CC/Negative/-- SD/--/--
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