Promotora de Informaciones, S.A. -- Moody's changes outlook on Prisa's Caa1 rating to stable from negative

January 15, 2021 at 12:32 PM·17 min read

Rating Action: Moody's changes outlook on Prisa's Caa1 rating to stable from negative

Global Credit Research - 15 Jan 2021

Madrid, January 15, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Caa1 corporate family rating (CFR) of Promotora de Informaciones, S.A. ("Prisa" o "the company"), a leading provider of cultural, educational, information and entertainment to the Spanish speaking markets. The outlook changed to stable from negative.

"We have changed the outlook on Prisa's Caa1 rating to stable from negative to reflect that the recent debt maturity extension is credit positive, removing the company's near-term refinancing risk and allowing more time to the company to achieve a recovery in operating performance and accelerate its digital transformation," says Víctor García Capdevila, a Moody's Assistant Vice President -- Analyst and lead analyst for Prisa.

"However, Prisa's leverage continues to be very high and its business profile has weakened as a result of the disposal of its education business in Spain," adds Mr. García Capdevila.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

On 31 December 2020, Prisa announced [1] the completion of the amend and extend (A&E) agreement of its bank facilities. The maturity of the E753 million senior secured term loan has been extended to March 2025 while the maturity of the E145 million super senior term loan and E80 million super senior revolving credit facility has been extended to December 2024. Before the A&E, the debt was due in 2022. The super senior term loan was upsized by E109 million to E145 million while the existing financial covenants have also been amended to provide further headroom.

Prisa's A&E was not viewed as a distressed exchange primarily because Moody's does not see evidences that the extension implied material losses for creditors.

As part of the A&E process, Prisa also completed on 31 December 2020 the disposal of its subsidiary Grupo Santillana Educación Global, S.L.U. (GSEG), the company's pre-K-12 and K-12 education business in Spain, to Sanoma Corporation, a Finish company present in the media and education business in Europe. The enterprise value of GSEG was estimated at E465 million, a multiple of 9.6x based on average EBITDA of E48.7 million between 2017 and 2019.

A large part of the proceeds from the sale of GSEG along with the funds from the sale of Media Capital for E37 million have been used to reduce the senior secured term loan by around E400 million to E753 million. Moody's estimates that the company's total gross debt as of the end of 2020, proforma for the A&E and the new super senior facility and excluding finance leases, was reduced to E898 million from E1.2 billion in 2019.

Despite a reduction of around 30% in total debt, the company's credit metrics remain very fragile due to a weak operating performance in 2020. Moody's estimates that Prisa's revenue in 2020 will fall by around 30% to E700 million while Moody's-adjusted EBITDA is likely to fall by around 60% to a range between E60 -- E70 million. This translates into a Moody's-adjusted gross leverage of around 15x in 2020. Our base case scenario assumes a partial recovery in operating performance in 2021 although still significantly below 2019. Moody's expects total revenue in 2021 to increase by around 6% towards E740 million, led by an 8% revenue growth in radio and press and a 4% growth in education. In terms of profitability, Moody's forecasts assume a strong recovery in EBITDA of around 60% to around E100 million in 2021 on the back of top line growth across all three business segments and cost cutting measures mainly in press and radio. Moody's forecasts assume a leverage reduction towards 10x in 2021 and 8.0x in 2022 with sustained negative free cash flow generation over that period. GSEG is a mature and stable business with highly visible and recurring profitability and cashflow generation in euros. The two remaining assets of the group generating earnings in euro are the radio and press segments, which continue to face important structural challenges. Moody's expects a limited EBITDA contribution of around E15 million - E20 million from these businesses in 2021, representing only about 15%-20% of group-wide EBITDA. Therefore, Prisa's euro denominated debt will have to be largely serviced with cash flow generation from the education business in Latam which increases the group's exposure to emerging market and foreign exchange risks. Moody's also remains cautious about the growth prospects of the education business in Latam given the weak economic environment and the negative effects of the coronavirus outbreak in the region.

LIQUIDITY

The company's liquidity is adequate following the A&E process, the sale of the Santillana business in Spain, the E109 million upsize of the company's super senior term loan facility, and the covenant reset.

As of December 2020, proforma for the A&E exercise, Moody's expects the company to have cash and cash equivalents of around E240 million, out of which about E10 million was restricted cash. The E80 million revolving credit facility is fully available.

Moody's estimates that the company will generate negative free cash flow of around E80 million in 2021, but the current large cash balance and availability under the RCF will allow the company to cover the expected level of cash burn over the next 12-24 months. However, Moody's notes that Prisa's liquidity will become increasingly tighter in 2023, when there is also a significant step down on the covenants included in its facilities agreement.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects the company's adequate liquidity profile, the expected progressive improvement in operating performance over the next two years and the good underlying value of the company's assets which would translate into a high recovery rate for creditors in case of a hypothetical default scenario.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Positive rating pressure is unlikely over the next 12-18 months. A rating upgrade would require sustainable growth in group-wide revenue and EBITDA, a turnaround in operating performance in the press and radio business segments, a reduction in Moody's-adjusted gross leverage below 6.5x and an adequate liquidity profile.

Downward rating pressure could develop should operating conditions deviate significantly from Moody's current expectations, liquidity deteriorates or the likelihood of a default over the next two years increases.

LIST OF AFFECTED RATINGS

..Issuer: Promotora de Informaciones, S.A.

Affirmation:

.Corporate Family Rating, Affirmed Caa1

Outlook Action:

....Outlook, Changed To Stable From Negative

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Promotora de Informaciones, S.A. (Prisa), headquartered in Madrid (Spain), is a leading provider of cultural, educational, informative and entertainment content to the Spanish speaking markets. It has a presence in 24 countries and offers its content through three business lines: Education, Radio, Press. In 2019, Prisa reported revenue of E1,096 million and EBITDA of E242 million.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

REFERENCES/CITATIONS

[1] Company announcement 31 December 2020 [https://www.prisa.com/en/noticias/notas-de-prensa/prisa-completes-debt-refinance-deal-and-sells-santillana-spain-to-sanoma-] 31-Dec-2020

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Victor Garcia, CFA Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Ivan Palacios Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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