Moody's may downgrade Internet Brands

Moody's Investors Service said it placed the ratings of Internet Brands, Inc. on review for downgrade following news that it intends to acquire WebMD Health Corp. in an all-cash transaction that values WebMD at $2.8 billion.

The review reflects an expectation that Internet Brands will likely operate with higher financial leverage than previously expected, engage in bigger debt-funded mergers and acquisitions targets and meaningfully increase exposure to cyclical advertising revenue, Moody's said.

The ratings on downgrade review include Internet Brands' corporate family rating of B2 and probability of default rating of B2-PD.

The B1 (LGD 3) rating on Micro Holding Corp.'s $75 million revolving credit facility due 2019 also is on downgrade review, along with the B1 (LGD 3) rating on its $1.184 billion first-lien term loan due 2021 and the Caa1 (LGD 6) rating on its $170 million senior secured second-lien senior term loan due 2022.

Under the terms of the purchase agreement, an Internet Brands subsidiary will initiate a tender offer over the next nine days to acquire all of the issued and outstanding common shares of WebMD for $66.50 per share, Moody's explained.

Although the mix of debt and equity has not been disclosed, as part of the funding package for the transaction, the agency said it believes the company could more than double its gross debt, resulting in higher financial leverage at or above 7x total debt-to-GAAP EBITDA on a pro forma combined company basis.

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