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S&P Cuts Dex Media (DXM) to 'SD' Following Failure to Make Notes Interest Payment

October 1, 2015 12:41 PM EDT

Standard & Poor's Ratings Services said that it lowered its corporate credit rating on Dex Media Inc. (NASDAQ: DXM) to 'SD' (selective default) from 'CCC+'. At the same time, we lowered our issue-level rating on the company's subordinated notes due 2017 to 'D' from 'CCC-'. The '6' recovery rating on the subordinated notes is unchanged, indicating our expectation for negligible recovery (0%-10%) of principal in the event of a payment default.

Additionally, we lowered our issue-level rating on R.H. Donnelley Inc.'s senior secured term loan to 'CCC-' from 'CCC' and placed it on CreditWatch negative. The '5' recovery rating on the term loan is unchanged, indicating our expectation for modest recovery (10%-30%; upper half of the range) of principal in the event of a payment default.

We also lowered our issue-level ratings on Dex Media East Inc., Dex Media West Inc., and SuperMedia Inc.'s credit facilities to 'CCC' from 'CCC+' and placed the ratings on CreditWatch negative. The '4' recovery rating on the credit facilities is unchanged, indicating our expectation for average recovery (30%-50%; upper half of the range) of principal in the event of a payment default.

The downgrade follows Dex Media's failure to pay the cash portion of the interest payment on its subordinated notes due 2017. The interest payment was due on Sept. 30, 2015. The company currently has adequate liquidity to service its debt.

An event of default has not occurred under the indentures governing the notes, which provide a 30-day grace period. "However, we do not expect a payment to be made within the stated grace period, given the company's heavy debt burden, which we view as unsustainable," said Standard & Poor's credit analyst Minesh Patel.

Furthermore, Dex Media has disclosed that certain lenders are negotiating a possible restructuring of its credit facilities. We believe that the company is unlikely to be able to refinance its credit facilities, which mature in December 2016 and the probability of a restructuring has increased meaningfully. Accordingly, we have lowered our ratings on the credit facilities to reflect the possibility that the company could use the grace period to restructure the credit facilities. If the credit facilities are impaired or if the company fails to service the credit facilities, we will lower the issue-level ratings further to 'CC' or 'D'. We could also lower our issue-level ratings on the credit facilities if credit facility lenders accelerate the maturity date.



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