Moody's revises LodgeNet view to stable

Moody's Investors Service said it revised LodgeNet Entertainment Corp.'s outlook to stable from positive, affirmed the corporate family and probability-of-default ratings at B1 and put the company's Ba1 (LGD2, 16%) senior secured revolver, Ba1 (LGD2, 16%) senior secured term loan and B2 (LGD5, 72%) 9½% senior subordinated notes on review for downgrade.

The rating actions follow the announcement by LodgeNet of its acquisition of On Command for $380 million. LodgeNet is expected to pay $332 million in cash and to receive $23.35 million from the sale of its stock to a private investment firm to help finance this transaction. LodgeNet also has committed financing. The agency said it expects that additional financial risk for the company could be partially offset by the operational benefits of the combined entity. The company's debt-to-EBITDA ratio is expected to increase to about 3.9x from 3.1x.

LodgeNet's B1 corporate family rating continues to reflect significant exposure to the lodging industry's inherent cyclicality, seasonality and volatility, as well as the company's dependence on the quality of Hollywood product, extensive need for capital investment and thin interest coverage after capital expenditures, the agency said.

The rating is supported by LodgeNet's large installed room base and the consequent advantages of scale, growing free cash flow and diversification from the new revenues streams, such as from services to health care facilities and travel centers, Moody's said.

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