Moody's rates Dex Media add-on Caa2

Moody's Investors Service said it assigned a Caa2 rating to Dex Media Inc.'s add-on $250 million gross proceeds 9% senior discount notes due 2013, which are intended to pay another dividend to The Carlyle Group and Welsh, Carson, Anderson & Stowe.

Concurrently, Moody's lowered the ratings of all existing debt at the holding company and at Dex Media West LLC and Dex Media East LLC.

Ratings downgraded include Dex Media Inc.'s $500 million 8% cash pay unsecured notes due 2013 and senior unsecured issuer rating to Caa2 from Caa1 and Dex Media East's $1.1 billion senior secured credit facility to B1 from Ba3, $450 million 9.875% senior unsecured notes due 2009 to B3 from B2, and $525 million 12.125% senior subordinated notes due 2012 to Caa1 from B3.

Other ratings downgraded include Dex Media West's $2 billion 8.5% senior unsecured credit facility to B1 from Ba3, $385 million 8.5% senior unsecured notes due 2010 to B3 from B2 and $780 million 9.875% senior subordinated notes due 2013 to Caa1 from B3.

Moody's said the downgrades reflect the incremental increase in financial leverage well above historical levels to about 6.7 times EBITDA (excluding the approximately $130 million of preferred stock at the holding company), the modest amount of free cash flow relative to the substantial debt in the mid single digits, and thin coverage of total interest expense.

The downgrades are triggered by the companies' deviation from Moody's expectation of permanent debt reduction and managing down total consolidated financial leverage below 6.5 times EBITDA.

Mitigating these concerns are the unchanged views that business fundamentals are solid and cash flow generation should remain stable throughout the intermediate term.

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