Moody's cuts Source Interlink to Caa1

Moody's Investors Service said it lowered Source Interlink Cos. Inc.'s corporate family and its probability-of-default ratings to Caa1 from B3 and $869 million senior secured term loan B due 2014 to B3 (LGD3, 39%) from B2 (LGD3, 36%).

Moody's affirmed $465 million senior unsecured facility due 2017 at Caa2 (LGD5, 76%) and $300 million senior secured asset based revolving credit facility due 2013 at B1 (LGD2, 21%).

The outlook was changed to negative.

The downgrade reflects concern that weak market conditions in Source Interlink's fulfillment, distribution and publishing businesses will continue to strain the company's liquidity profile and heighten the probability of covenant default, according to the agency.

The Caa1 rating reflects Source Interlink's heavy debt burden, high leverage and the company's dependence upon achieving benefits from recent cost cutting measures, the agency said.

Ratings are supported by the company's leading market position in the magazine, limited number of direct competitors, its long standing customer relationships and expectation that it will generate positive free cash flow, Moody's said.

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