Moody's cuts Alliance Films

Moody's Investors Service said it downgraded the corporate family and probability-of-default ratings of 3217920 Nova Scotia Co., a subsidiary of Alliance Films Holdings Inc., to Caa2 from Caa1, senior secured first-lien bank credit facility to B3 (LGD2, 26%) from B2 and senior secured second-lien bank credit facility to Caa3 (LGD4, 69%) from Caa2.

This action concludes the review that began on April 24 and reflects concern over the sustainability of the company's capital structure.

The outlook is negative.

Alliance Films achieved compliance with the revolver's leverage covenant as of June 30 with the infusion of C$40 million from its two equity sponsors, and Moody's said it expects that the company will remain in compliance with its financial covenants over the next year.

Absent a material improvement in operating performance, renegotiation of bank covenants or an incremental equity contribution, compliance on June 30, 2009 will challenge the company, according to the agency.

The Caa2 corporate family rating reflects high leverage, weak liquidity and risk associated with film quality and contract renewal, the agency said.

The business model requires front-end payments to secure content, which in turn has an unpredictable future revenue stream, Moody's added.

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