S&P cuts Canon Communications outlook to negative

Standard & Poor's said it revised its outlook on Canon Communications LLC to negative from stable and affirmed the company's B corporate credit and bank loan ratings following the company's announcement that it will be making a $41 million debt-financed acquisition.

S&P also raised the recovery rating on Canon's amended first-priority bank credit facility to 2 from 3 after raising the company's EBITDA valuation multiple to 5x from 4x based on current market information.

S&P said the outlook revision reflects the risks related to integrating such a large acquisition with the company's existing businesses and the agency's concern over Canon's ability to reduce leverage over the longer term.

The ratings reflect Canon's significant cash flow concentration in a few publications and trade shows, its small cash flow base, its low sector diversity and meaningful concentration on the medical device sector niche, the potential for competitive threats from much larger rivals, the company's high debt leverage, industry weakness in print advertising and economic uncertainty, the agency said. Lease-adjusted debt to EBITDA is 7.2x.

These factors are partially offset by the good competitive positions and complementary nature of Canon's events and publications, including those of the acquired assets, and the company's discretionary cash flow potential.

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