-- On Nov. 13, 2012, U.S.-based Penton Business Media Holdings acquired
Farm Progress, a leading agriculture-focused publisher and trade show
operator, from Fairfax Media Ltd. for $79.9 million before certain adjustments.
-- We are increasing our estimate of enterprise value at default,
reflecting better operating performance and the Farm Progress acquisition.
-- We are affirming our 'B-' corporate credit rating on Penton. At the
same time, we are revising our recovery rating on the senior secured debt to
'3' from '4'. The issue-level rating on this debt is affirmed at 'B-'.
-- The stable outlook reflects our expectation that the company will
continue to generate discretionary cash flow and EBITDA coverage of interest
expense will continue to improve, and that liquidity and compliance with
financial covenants will remain adequate over the near term.
On Nov. 29, 2012, Standard & Poor's Ratings Services affirmed its 'B-'
corporate credit rating on New York City-based business-to-business trade show
operator and publisher Penton Business Media Holdings Inc. The outlook is
At the same time, we revised the recovery rating on the company's senior
secured debt to '3', indicating our expectation for meaningful (50%-70%)
recovery prospects in the event of a default, from '4'. We affirmed the 'B-'
issue-level rating on this debt.
The rating on Penton reflects Standard & Poor's expectation that the company's
leverage will remain high over the intermediate term. The rating also
incorporates our view of refinancing risk in relation to the company's August
2014 debt maturity, notwithstanding our expectation that the company's
liquidity will be "adequate" over the near term and that Penton will continue
to generate discretionary cash flow. These factors underpin our view of
Penton's financial risk as "highly leveraged" based on our criteria. We assess
Penton's business risk as "weak" given our expectation that the company will
remain susceptible to cyclical advertising demand and that unfavorable secular
trends will continue to pressure the publishing business.
On Nov. 13, 2012, Penton acquired Farm Progress from Fairfax Media. Pro forma
for the acquisition, lease-adjusted leverage is 7.6x, or 7.2x when assuming
synergies. The acquisition expands Penton's presence in the agriculture
industry and adds large exhibition shows to the company's portfolio. The
acquisition was funded with the revolving credit facility and cash on hand.
Penton is one of the largest independent business-to-business media companies
in the U.S. Trade publishing, which accounts for about half of total revenue,
is sensitive to cyclical advertising demand in certain of the company's end
markets-such as restaurants, aviation, and financial services-and secular
trends in others such as manufacturing. Trade publications rely exclusively on
advertising because they do not charge subscription fees. Trade publishing is
facing broadly unfavorable secular trends. Print advertising is exhibiting a
long-term decline in light of competition from Internet-based media, which
have low barriers to entry. The company has closed some unprofitable magazines
and cut significant costs from the publishing business, but additional margin
improvement in this area may be difficult to accomplish. The company's trade
show portfolio includes leading shows such as ExpoEast, ExpoWest, and
WasteExpo, along with some smaller shows. The Farm Progress acquisition adds
leading agriculture trade shows to Penton's portfolio. The trade show segment
is vulnerable to economic cyclicality, although larger trade shows tend to be
able to absorb declines better than smaller shows. We view Penton's management
and governance to be "fair."
Under our base case scenario for 2013, we expect revenue to grow at a low- to
mid-teens percentage rate primarily due to the Farm Progress acquisition. We
believe that 2013 organic revenue will remain relatively flat, with growth
from trade shows and digital offsetting long-term declines in the publishing
segment. We expect EBITDA to grow over 20% in 2013 due to the acquisition and
a modest increase in profitability at the company's existing businesses. We
expect the EBITDA margin to be in the high-20% range for 2013. Under these
assumptions, we expect debt to EBITDA, adjusted for operating leases and
pension obligations, to fall to under 7x by the end of 2013. As of Sept. 30,
2012, lease-adjusted debt to EBITDA was high at 8.2x, down from 8.8x at Sept.
30, 2011-higher than the 5.0x or more level that Standard & Poor's associates
with a highly leveraged financial profile. Pro forma for the Farm Progress
acquisition, leverage was 7.2x assuming synergies. We expect pro forma
leverage to fall to around 7x by the end of 2012.
For the quarter ended Sept. 30, 2012, revenue fell 1% and EBITDA increased
more than 10%. A decline in print revenue offset gains in the trade show and
digital segments. The improvement in the EBITDA margin was due to the closure
of certain lower margin properties and growth in the higher margin exhibition
segment. We include restructuring-related costs and management fees in our
calculation of EBITDA. The company's EBITDA margin for the 12 months ended
Sept. 30, 2012, was 25.3%, up from 23.1% for the same period in 2011.
Unadjusted EBITDA coverage of cash interest was 2.5x for the 12 months ended
Sept. 30, 2012, an improvement from 1.6x in same the period a year earlier.
Pro forma for the Farm Progress acquisition, cash interest coverage was over
3x. We expect this metric to be in the high-3x area at the end of 2013. Cash
interest expense has fallen significantly over the past two years due to the
expiration of unfavorable interest rate swap agreements. The company converted
roughly 52% of EBITDA into discretionary cash flow for the 12 months ended
Sept. 30, 2012, an increase from 15% in the same period a year earlier. We
expect the company will convert over 60% of EBITDA to discretionary cash flow
in 2013, due to our expectation of EBITDA growth with a minimal increase in
Penton has "adequate" liquidity to cover its operating needs over the next 12
to 18 months, as per our criteria. This assessment incorporates the following
expectations and assumptions:
-- We expect the company's sources of liquidity to cover its uses by at
least 1.2x over the next 12 to 18 months.
-- We expect net sources to be positive over the next 12 months, even
with a 15% to 20% drop in EBITDA.
-- We expect the company to maintain covenant compliance in the event of
a 15% decrease in EBITDA.
-- Because of the company's satisfactory margin of compliance with its
financial covenants, and our expectation that the company will generate solid
discretionary cash flow this year, we believe it could absorb a high-impact,
low-probability event without the need for refinancing.
As of Sept. 30, 2012, Penton's liquidity sources included cash balances of
$37.0 million and full borrowing availability on the $42.7 million revolving
credit facility due 2014. At the end of 2012, we believe Penton will have
total liquidity of $25 million or more, following payments for the Farm
Progress acquisition. We expect the company to generate $50 million of
discretionary cash flow for the full year 2012 and $55 million to $60 million
in 2013. Uses of liquidity include modest capital expenditures. The company
also has annual debt amortization payments of $6.4 million. Penton's term loan
and revolving credit facility mature in August 2014.
The amended credit agreement contains a minimum liquidity requirement and a
minimum EBITDA requirement. The minimum EBITDA test was the tightest covenant
as of Sept. 30, 2012, with a 40% cushion. This covenant became effective on
March 31, 2011, and progressively steps up each quarter. We estimate that the
company's margin of compliance with its minimum EBITDA requirement will be
adequate over the near term. The company's credit agreement also has a minimum
liquidity covenant, which stipulates that the company's cash balance and
availability under its revolving credit facility must be greater than $15
million. The covenant allows for the cash balance to drop to $12.5 million for
two months during any 12-month period and $10 million for one month during the
same 12-month period.
For the complete recovery analysis, please see our recovery report on Penton
Business Media Holdings, Inc., to be published on RatingsDirect following this
The outlook is stable, reflecting our expectation that discretionary cash flow
and EBITDA coverage of interest expense will continue to improve, and that
liquidity and compliance with financial covenants will remain adequate over
the near term. We could raise the rating if the company makes significant
progress toward addressing its 2014 maturities. An upgrade would likely also
entail the company showing consistent organic revenue and EBITDA growth, with
a stable or improving EBITDA margin.
Although less likely over the near term, we could lower the rating if EBITDA
trends reverse, causing discretionary cash flow to decline dramatically.
Factors that could contribute to such a scenario include a resumption of
economic weakness and accelerated declines in the business-to-business media
segment, especially the trade publishing business.
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Penton Business Media Holdings Inc.
Penton Media Inc.
Penton Business Media Inc.
Corporate Credit Rating B-/Stable/--
Ratings Affirmed/Recovery Change
Penton Business Media Inc.
Penton Media Inc.
Senior Secured B- B-
Recovery Rating 3 4
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
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