Moody’s cuts Internet Brands, rates facilities

Moody's Investors Service said it downgraded Internet Brands, Inc. corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD and existing debt ratings by one notch (first-lien credit facilities to B2 from B1 and second lien-lien term loan facility to Caa2 from Caa1).

In connection with this action, the agency assigned a B2 rating to the new incremental revolving credit facility and incremental first-lien term loan, and a Caa2 rating to the new second-lien term loan facility.

The outlook is revised to stable. This confirms the review that began on July 25.

The downgrade reflects Moody's expectation that Internet Brands will: (a) Delay deleveraging and operate with higher-than-expected financial leverage over the rating horizon; (b) meaningfully transform the business model by increasing exposure to cyclical advertising revenue after previously transitioning to a mostly subscription-based SaaS revenue model; and (c) engage in bigger debt-funded M&A targets.

Proceeds from the new credit facilities plus new equity totaling about $1.1 billion and $315 million of balance sheet cash will be used to: (a) Fund the WebMD acquisition plus fees and expenses ($2.8 billion); (b) repay the existing second-lien term loan ($170 million); and (c) repay a portion of the existing first-lien term loan ($50 million).

As part of this transaction, Internet Brands will extend the maturities of its existing first-lien credit facilities to match the maturities of the new incremental facilities, the agency explained. Prior to transaction closing, the company will separate its Autodata subsidiary and remove it from the restricted group by spinning it out to existing shareholders.

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