Moody's rates Vertis Caa1, debt B3

Moody's Investors Service said it assigned Caa1 corporate family and probability-of-default ratings and an SGL-3 speculative-grade liquidity rating to Vertis, Inc. and B3 (LGD3, 42%) ratings to its proposed $600 million first-lien senior secured debt due 2015 that may be allocated between notes and a term loan.

The outlook is stable.

The ratings are assigned in connection with Vertis' proposed out-of-court restructuring and refinancing that will reduce its debt by approximately 20% to $935 million through the conversion of existing senior PIK notes to common stock and the exchange of existing senior secured second-lien notes for new secured notes, cash and preferred stock.

Vertis plans to use the proceeds from the first-lien debt offering to repay existing bank debt and second-lien notes. The agency said the restructuring and refinancing favorably extend the company's maturity profile and reduce total interest expense but also significantly increase Vertis' cash interest costs.

The Caa1 corporate family rating reflects the company's high leverage, thin coverage of total interest costs and the long-term price and volume pressure on the print-based advertising and direct marketing products and services that comprise the majority of the company's revenue, Moody's said. In addition, the agency believes the risk of another restructuring over the intermediate term will remain elevated unless the debt-to-EBITDA ratio is reduced.

Vertis' sizable revenue and modest cash flow generation, significant scale and broad geographic reach within the United States and long-term customer relationships provide a foundation from which the company could improve its credit profile, in Moody's view.

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