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Fitch Publishes Rating on APN at 'BB-'; Proposed Bond 'BB-(EXP)'
September 4, 2014 / 3:21 AM / 3 years ago

Fitch Publishes Rating on APN at 'BB-'; Proposed Bond 'BB-(EXP)'

(The following statement was released by the rating agency) HONG KONG/SYDNEY/SINGAPORE, September 03 (Fitch) Fitch Ratings has published APN News & Media Limited's (APN) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured debt class rating at 'BB-'. The Outlook is Stable. Fitch has also published the expected 'BB-(EXP)' rating on the proposed senior unsecured guaranteed US dollar notes to be issued by its wholly owned subsidiary, Biffin Pty Limited, and unconditionally and irrevocably guaranteed by APN and its key operating subsidiaries. The final rating on the notes is contingent upon the receipt of final documents conforming to information already received. The notes are rated in line with APN's senior unsecured rating of 'BB-' as they will represent direct, unconditional, unsecured and unsubordinated obligations of the company. The proceeds from the proposed senior unsecured notes will be used to repay outstanding indebtedness. KEY RATING DRIVERS Leading Positions; Unique Assets: The ratings reflect APN's strong brands in radio and publishing in Australia and New Zealand and its ability to consistently deliver high quality content, which should enable the company to maintain its market positions. The ratings also reflect APN's unique asset combination and its ability to offer cross-platform advertising over its publishing, radio, outdoor and digital assets. The higher earnings and cash flow visibility from its radio networks help mitigate the structurally weaker publishing businesses. Notes not Notched Down: Prior-ranking secured debt - facilities A of the syndicated bank loans - will remain a significant part of the company's funding structure in the medium term. However, we have not notched the notes down below the IDR as our conservative forecasts indicate that the ratio of prior-ranking secured debt/EBITDA will remain below the guideline threshold of 2.0x-2.5x set out in our criteria "Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers". Resilient Radio Networks: Fitch believes that APN's radio business should remain less vulnerable to the growing popularity of alternative media platforms, such as the internet, and should continue be resilient. Advertising revenue for commercial radio broadcasters is less subject to fluctuations in global and national advertising budgets. Instead, local advertising sales dominate radio advertising revenue. In addition, APN's rebranding and talent recruitment should continue to help gain audience and revenue market shares. Structural Challenges in Publishing: The rating reflects the on-going structural challenges confronting APN's publishing business. Despite APN's strong positions in the New Zealand national newspaper market and the Australian regional newspaper market, Fitch expects APN's publishing business to remain under pressure due to the on-going migration of advertising expenditure to digital platforms and the associated media fragmentation. Steady Cash Generation: APN's key businesses are cash generative and their capex requirements are low. Fitch expects that APN's pre-dividend free cash flow (FCF) margins will increase to about 10% in the next three years. The group structure has improved with the acquisition of partners' stakes in Australia Radio Network and The Radio Network, which has eliminated the cash flow leakage from the group to these partners. Potential Impact of NZ IPO: In the event that an IPO of the New Zealand business were to go ahead, the resulting market concentration would be likely to constrain the rating at 'BB-' even if the proceeds were used to pay down debt. High Leverage: At end-June 2014, APN had gross debt of AUD504m. Fitch forecasts funds flow from operations (FFO)-adjusted net leverage to decline from 5.1x in 2013, but nevertheless to remain above 3.0x for at least the next two to three years. Further deleveraging will depend largely on the ability of the radio business to offset declining revenues in the publishing business, the successful implementation of a paywall strategy and the company's decisions about use of FCF. RATING SENSITIVITIES Negative: Future developments that may individually or collectively lead to a negative rating action include: - significant deterioration in the operating profile amid on-going competitive pressures, changing media consumption patterns and evolving technology platforms - large debt-funded acquisition indicating a significant increase in APN's risk tolerance - sustained negative FCF margins - sustained FFO-adjusted net leverage above 4.0x Positive: Future developments that may individually or collectively lead to a positive rating action include: - successful transition to digital platforms for its publishing businesses - material diversification of cash generation from the publishing business - sustained FFO-adjusted net leverage below 3.0x Contact: Primary Analyst Kelvin Ho Director +852 2263 9940 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Nitin Soni Director +65 6796 7235 Committee Chairperson Steve Durose Senior Director +61 2 8256 0307 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0326, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 and "Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers", dated 19 November 2013 are available at Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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