American Media Inc. got a small pat on the back from Moody's for the sale of Shape and other titles to Meredith for $60 million — but it's not out of the woods.
While the ratings agency said the sale is a "positive step" toward reducing debt, Moody's didn't raise AMI's junk rating or its "negative" outlook.
The hurdle is the $326 million debt load that CEO David Pecker is still carrying on AMI's books. Another issue: The weak newsstand outlook for AMI's remaining titles, including National Enquirer, Star and OK!
Meredith said it will combine Shape with its own Fitness title for a total circulation of 2.5 million.
Fitness will survive only as a Web site.
Shape was making about $10 million a year for AMI. Meredith CEO Steve Lacy said the revamped Shape is expected to earn $17 million next fiscal year. That's good news for AMI, since it's entitled to a 40 percent share of Shape's future profits through June 30,2018.
Meanwhile, AMI will use the initial $60 million to pare down debt on bonds due in 2017.
Bondholders Chatham Asset Management, Omega Advisors and Leon Cooperman's Omega Charitable Partners gained control of AMI through a debt-for-equity swap that wiped out shareholders last July.
Moody's said the Shape sale cuts AMI's debt-to-earnings ratio to just over six times and that it's keeping an eye on company plans to refinance its first lien bonds by June 30.
"The company is in the best financial position it has ever been in — lowest debt level and highest free cash flow — and is well-positioned to strategically drive down debt further," Chris Polimeni, AMI's chief financial officer, said.
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