New York, October 08, 2015 -- Moody's Investors Service (Moody's) has placed ProQuest LLC's (ProQuest) ratings on review for downgrade, including the B2 corporate family rating , Ba2 First out revolver, and B2 1st lien term loan rating, following the announced acquisition of Ex Libris Group which is a global provider of library automation solutions. The review for downgrade will focus on the leverage levels and interest coverage pro-forma for the acquisition as well as the improvement in the strategic position of the combined entity. We anticipate any downgrade to be limited to one notch.
Moody's took the following ratings actions:
- $75 million Senior Secured 1st lient First Out revolving credit facility maturing 2019, Ba2 (LGD1), placed on Review for Downgrade
- $450 million Senior Secured 1st lien term loan maturing 2021, B2 (LGD4), place on Review for Downgrade
- ....Corporate Family Rating, B2, placed on Review for Downgrade
- ....Probability of Default Rating, B2-PD, placed on Review for Downgrade
- ....Outlook, changed to Rating Under Review from Stable
The review for downgrade reflects the announced acquisition of Ex Libris Group which has the potential to lead to leverage increasing above its current level of 5.9x as of Q2 2015 (incorporating Moody's standard adjustments as well as expensing content costs). While we had anticipated leverage to decline to the mid 5x as the revolver was repaid at the end of 2015, the transaction is expected to lead to higher leverage that could be above the threshold for the existing B2 CFR. ProQuest faces challenges at its smaller global corporate and US government, public libraries & schools businesses. Despite growth in its higher education division, organic revenue growth has been modest due to declines from its Dialog business and weakness from legacy products that are in secular decline (microfilm and print). ProQuest also operates in a competitive environment and will face rising royalty payments which will need to be offset by revenue growth or cost savings elsewhere to avoid decreasing EBITDA margins.
The company's ratings are supported by a large subscription base in the library reference market with extensive content databases sold to libraries, corporations and government organizations, as well as high renewal rates and a recurring stream of revenues. ProQuest is expected to benefit from the larger size and product offerings following the acquisition that could increase growth rates going forward. The company has also benefited from the acquisition of Ebook Corporation Limited (EBL) in 2013 that has been a source of growth, although declines or slower growth in other business lines is expected to limit organic revenue growth over the next year of the existing business.
The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in Ann Arbor, Michigan, ProQuest LLC (ProQuest) aggregates, creates, and distributes academic and news content serving academic, corporate and public libraries worldwide. Cambridge Information Group (CIG) acquired the ProQuest Information and Learning business of Voyager Learning Company (fka ProQuest Company) in February 2007 and merged it with its Cambridge Scientific Abstracts, Limited Partnership (CSA) business to form ProQuest. In conjunction with the transaction, ABRY Partners acquired a 20% stake in ProQuest with CIG contributing CSA for the remaining 80% voting interest and a cash distribution. Goldman Sachs Partners (Goldman) acquired ABRY's ownership position as well as additional ownership units in November 2013. Annual revenue as of Q2 2015 was over $500 million.
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