New York, November 06, 2007 -- Moody's Investors Service assigned ProQuest LLC ("ProQuest") a first-time B1 Corporate Family rating, B1 Probability of Default rating, Ba3 rating and LGD3-38% assessment on $280 million of first lien senior secured credit facilities, and B3 rating and LGD5-87% assessment on the $60 million second lien senior secured credit facility. The credit facilities were issued in conjunction with Cambridge Information Group's ("CIG") February 2007 acquisition of ProQuest Information and Learning Company ("PQIL") from Voyager Learning Company (fka ProQuest Company) for a $222 million cash purchase price. CIG merged PQIL with its Cambridge Scientific Abstracts, Limited Partnership ("CSA") business to form ProQuest. In conjunction with the transaction, ABRY Partners invested $63 million for a 20% stake in ProQuest with CIG contributing CSA for the remaining 80% voting interest and a cash distribution.
..Issuer: ProQuest LLC
....Corporate Family Rating, Assigned B1
....Probability of Default Rating, Assigned B1
....Senior Secured First Lien Bank Credit Facility, Assigned Ba3, LGD3-38%
....Senior Secured Second Lien Bank Credit Facility, Assigned B3, LGD5-87%
ProQuest's B1 CFR reflects the company's good market presence and recurring revenue generated from extensive content databases sold primarily to libraries through online, print and microfilm subscriptions. The customer base is concentrated with academic libraries, reflecting a focus on content available for deep subject matter research including extensive archives of dissertations, out-of-print books and research collections as well as major market newspapers and a wide variety of periodicals. ProQuest stands to benefit from continued transition of library spending on reference materials to digital from print platforms. ProQuest's databases contain a mix of licensed content and publications that the company has made the investment to digitize and index. The majority of the content is not exclusive, and Moody's believes this creates long-term disintermediation risk. However, the cost of digitizing the content, creating the proprietary indexing/taxonomy to improve search functionality, and one-stop online delivery platform partially mitigates this risk over the intermediate term.
PQIL has underperformed peers in recent years as prior management's time was diverted to complete an extensive restatement of the company's financial statements that resulted in significant downward adjustments to previously reported 2001-2005 revenue and operating earnings. CIG expects renewed management focus and cost savings from integration with its CSA business will result in a significant improvement in EBITDA margins. The magnitude of the projected improvement is aggressive and Moody's believes integration risk and the cost necessary to establish effective financial reporting and internal control systems could lead to margin volatility in 2007 and 2008.
The B1 CFR and stable rating outlook reflect Moody's expectation that continued library investment in digital content databases and execution of cost saving initiatives will lift EBITDA margins from 13.7% in 2006 (pro forma PQIL and CSA combined incorporating Moody's standard adjustments and after expensing content development costs) to an 18-20% range in 2007 and 2008. Pro forma debt-to-EBITDA based on carve-out 2006 audits for PQIL and CSA is very high at 7.6x but Moody's anticipates in the B1 CFR that the margin improvement and debt reduction from free cash flow will result in debt-to-EBITDA in a 4.0-5.0x range over the next 12-18 months.
Subscribers please see Moody's credit opinion posted on www.moodys.com for additional information regarding ProQuest's ratings.
ProQuest LLC, headquartered in Ann Arbor, Michigan, is an aggregator, creator and distributor of academic and news content serving over 10,000 academic, corporate and public libraries worldwide. ProQuest's pro forma combined revenues were $341 million in 2006.
John E. Puchalla
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
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