Moody's rates LodgeNet loans Ba3, cuts note to B3

Moody's Investors Service said it affirmed LodgeNet Entertainment Corp.'s corporate family and probability-of-default ratings at B1, affirmed its senior secured credit facility at Ba1 (LGD2, 16%), downgraded its 9½% senior subordinated notes to B3 (LGD5, 86%) from B2 and assigned Ba3 (LGD3, 32%) ratings to its proposed senior secured credit facility.

The outlook is stable.

The proposed $450 senior secured credit facility includes a $50 million revolver, a $75 million initial draw term loan and $325 million delayed-draw term loan. Proceeds will be used to acquired On Command Corp.

The agency said it believes that the additional financial risk following the mostly debt-financed acquisition is mitigated by the operational benefits of the combined entity and the positive momentum of the company prior to the acquisition. LodgeNet's debt-to-EBITDA ratio is expected to increase to just above 4x from 3.1x.

The downgrade of the notes reflects the insertion of more senior debt into the capital structure.

LodgeNet's B1 corporate family rating continues to reflect the company's exposure to the lodging industry's inherent cyclicality, seasonality and volatility; the company's dependence on the quality of film and television product; capital expenditure requirements; and thin fixed charge coverage, Moody's said.

The rating is supported by LodgeNet's large installed room base and the consequent advantages of scale, potential for more modest future investment requirements than historically and diversification through new revenues streams, including services to health-care facilities and travel centers, the agency said.

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