May 16 – Standard & Poor’s Ratings Services said today that Dallas,
Texas-based print and digital marketing services provider SuperMedia Inc.’s
(CCC+/Negative/–) latest subpar debt repurchase does not affect
our current corporate credit rating on the company. Our issue-level rating on
the company’s term loan due 2015 remains at ‘D’. Per Standard & Poor’s criteria,
the ability to do ongoing subpar repurchases of this issue is tantamount to a
default. We expect the issue to remain at this rating level until the company no
longer has the authorization to buy back debt below par.
We believe SuperMedia’s liquidity and adjusted debt leverage will not change
materially as a result of this transaction, as the company is using $33 million
of cash and must keep at least $50 million in cash as per its amendment dated
Nov. 8, 2011. Lease- and pension-adjusted leverage, pro forma for the subpar
debt repurchase, decreased to 3.0x for the 12 months ended Mar. 31, 2012, from
3.9x over the same period last year. We anticipate that the company will
continue to repurchase debt in the open market below par with roughly 32.5% of
its free cash flow, as defined in the credit agreement. The agreement stipulates
that SuperMedia must repay 67.5% of the debt at par. We believe the company will
need to continue repurchasing debt and stem revenue declines in order to be able
to refinance the credit facility by Dec. 31, 2015, which we regard as an
unlikely scenario.
