Thread regarding Synamedia layoffs

Permira have probably been trying to sell this turkey for ages. I've heard rumours of BT sale a few times but clearly no one will buy. lets be real, would you ?

Down to B- with S&P too
Outlook = Negative

https://archive.is/20231017155826/https://www.spglobal.com/ratings/en/research/articles/230328-this-month-in-credit-2023-data-companion-12646771#selection-12821.1-12824.0

I'm of the view that things will go one of 3 ways in the next 6 months:

1) Costs stripped to the bone without affecting the BT (slowly dying) golden goose. Sell off assets (VN and other non-core) to pay down as much debt as possible. Try to refinance remaining First Lien debt on the back of higher EBITDA from a bare bones BT operation

2) Permira put up another $200mn+ to clear First Lien debt

3) Permira sell before debt default OR Lenders sell on after debt default

I get the feeling we're rolling slowly to #3!

Wouldn't it be interesting if the rating could be split to show the prospects for different parts of the company. How are the figures looking for legacy CA vs the shiny new stuff?

The countdown for this poor company started when Cisco ditched us.
It is inevitable...

Moody's are the same agency that gave junk CDS a AAA during the GFC, so not exactly a trustworthy source. Despite this it does look bleak.

In summary then:

First Lien has $232mn outstanding (as 30 September 2023) and due in full on 29 October 2024 (Moody's estimate $209mn will be due at that point).

If refi of First Lien isn't done by 30 July 2024 RCF facility becomes due. RCF was $6mn drawn (as of 26 June 2022). We'll know the 30 June 2023 balance of RCF soon. RCF would be paid out of cash reserves. First Lien ($209mn) would be due 3 months later (29 October 2024).

Second Lien of $100mn due 2025

So refinance First Lien of $232mn by 30 July 2024 or bust (probably)!

Other points:

$80mn of savings from "personnel reduction" (By my estimate this is over maybe 2 to 3 years. We didn't fire that many people! We cut 10-15% of workforce last year, I make that a $25-35mn a year saving.)
FCF (free cashflow) estimated to be positive (more cash to pay down debt!)
EBITDA estimated to grow (those personnel cuts will have helped!)
MCS/VN not offsetting BT decline
Company governance downgraded(!)
Moody's views Synamedia's liquidity as weak

Here's the release in full:

Moody's downgrades Synamedia's CFR to Caa1, outlook is negative

London, October 24, 2023 -- Moody's Investors Service (Moody's) has today downgraded Triton UK Midco Limited's (Synamedia or the company) corporate family rating (CFR) to Caa1 from B3 and probability of default rating (PDR) to Caa1-PD from B3-PD. This rating action concludes the review for downgrade opened in April 2023. Concurrently, Moody's affirmed the B3 rating of the $305 million senior secured first lien term loan due 29 October 2024 ($232million outstanding as of end of September 2023, "First Lien") and the senior secured first lien revolving credit facility (RCF) issued by Synamedia Americas Holdings, Inc. The outlook for both entities is negative.

RATINGS RATIONALE

Moody's understand the company is progressing discussion with a number of lenders to refinance all debt facilities. However, the rating agency doesn't expect Synamedia will complete the refinance the First Lien prior to 29 October 2023, when it will become current as maturing within a year. Synamedia's rating downgrade reflects the delays in refinancing its First Lien debt. Synamedia's liquidity could materially deteriorate within the next 12 months as the RCF's maturity (May 2026) would spring forward 91 days prior to the First Lien maturity (to about the end of July 2024) if no refinancing had taken place by such time.

Moody's acknowledges Synamedia's recent efforts to restructure its high cost base through a significant personnel reduction, which the company expects to generate over $80 million in cost savings. Although the rating agency expects FCF to be positive and EBITDA to grow on Moody's-adjusted basis in 2024, Moody's still views Synamedia's business model as challenged as Media Cloud Services and Video Network revenues growth have yet to offset the structural decline in Broadcast Technology divisions.

LIQUIDITY

Moody's views Synamedia's liquidity as weak. Synamedia is yet to refinance the First Lien that is due 29 October 2024. After further amortization of $23 million in the next year the balance at repayment is $209 million.

The $60 million RCF commitments will reduce by $5 million as of 1 November 2023 and the RCF documentation includes a springing forward maturity clause that will be triggered if refinancing of the First Lien has not been completed by the end of July 2024.

ESG CONSIDERATIONS

Moody's assessed the company's governance to be a key driver for today's rating action. The rating agency has changed the Governance score of Synamedia to IPS-5 from IPS-4 reflecting the delay in completing the refinancing. The credit impact score (CIS) has also changed to CIS-5 from CIS-4 which reflects the very material impact of Governance considerations on Synamedia's credit rating.

STRUCTURAL CONSIDERATONS

Moody's B3 rating of the First Lien and the RCF facilities is one notch above the CFR of the company. The rating uplift is supported by the presence in the capital structure of USD 100 million of second lien due in 2025, which is not rated by Moody's.

The security package is standard in the leverage finance market and is represented largely by share pledges. While the security package is considered weak, Synamedia's recent restructuring progress should result in improving FCF generation thereby improving the prospects of high recovery for First Lien lenders in a default scenario.

RATING OUTLOOK

The negative outlook reflects Moody's assessment of Synamedia's liquidity to further weaken in the next 12 months and the remaining uncertainty about timing of First Lien's refinancing.

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

Synamedia's ratings could be upgraded once refinancing of the First Lien is completed, the company's revenue for FY2024 are at least in line with FY2023 and gross margins remain stable. An upgrade would also require liquidity to be adequate, Moody's-adjusted leverage to remain below 3.5x, and a track record of growing non-legacy revenue (the legacy business being the set-top boxes software).

The ratings could come under downward pressure if the company fails to refinance the First Lien or revenue decline is higher than Moody's anticipated.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Staines, UK, Synamedia is a global provider of video infrastructure technology whose portfolio features video network services; anti-piracy solutions and intelligence; and video platforms with fully-integrated capabilities including cloud digital video recording (DVR) and advanced advertising. The company operates through 3 segments: (1) Broadcast Technologies, (2) Media Cloud Services, and (2) Video Network.

Well, at least we aren't at C.
Yet.
"Obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of principal and interest."

I think the last thing I would be investing in during a global downturn would be a company classified as (and I quote) "Rated as poor quality and very high credit risk."

Perhaps another round of mass redundancies just before Christmas might sort this - what do you reckon?