Moody’s Investors Service has downgraded three of Cygnus Business Media’s ratings as a result of the publisher’s disclosure that it is in default under the financial covenants of its senior secured loan agreements.
A Cygnus spokesperson did not immediately return a request for comment.
Cygnus’ Corporate Family and Probability of Default ratings were downgraded from B3 to Caa1, Moody’s said in a statement. Its senior secured bank loan rating was downgraded from B3 to B2. Moody’s indicated that Cygnus’ recent top-line performance has fallen short of expectations which it attributed, in part, to general softness in the company’s operating performance. Cygnus reported about $115 million in sales for the period that ended June 30.
According to Moody’s, Cygnus failed to comply with terms of its first lien senior secured loan agreement and its Series A preferred shareholders agreement. Cygnus, which is owned by ABRY Partners, has not announced plans to fund the payment of approximately $167 million in debt which is scheduled to mature in July 2009. About $9 million is due in January.
In June, financial credit rating agency Standard & Poor’s revised Cygnus’ credit rating outlook from stable to negative because of debt concerns.
This development could explain, in part, the delay in Cygnus’ acquisition by Penton Media parent Wasserstein and Co. (the deal was expected to close by the end of August). And while the downgrades may seem like a catastrophic turn for deal talks, it might not necessarily spell its termination, a knowledgeable source tells FOLIO:.
"Covenant defaults can range from minor to major, and the more serious they are the more likely the banks are to step in and take over control of the business," the source says. "I don’t think this delay necessarily implies that it is going to kill the deal but the ongoing delay could be undermining the business. And, it must make the deal more difficult to finance. The current banks may not be willing to roll over their debt to the new owner and new banks will be wary. The buyer may have to consider the painful option of putting in a lot more equity to fund the lending shortfall."
Moody’s said Cygnus will be under an ongoing review.