Moody's cuts WRC Media facility to B2

Moody's Investors Service said it lowered all ratings for WRC Media Inc. and placed the ratings on review for possible further downgrade.

Ratings downgraded include the company's $30 million senior secured revolving credit facility due 2005; $31 million senior secured term loan A due 2005; and $97 million senior secured term loan B due 2006, all to B2 from B1; the company's $152 million 12 ¾% senior subordinated notes due 2009 to Caa1 from B3; and the issuer rating to B3 from B2.

Moody's said the rating action signals Moody's heightened concerns regarding the company's pressured liquidity position and the belief that the company is likely to breach its bank loan financial maintenance covenants (which in turn would precipitate further liquidity constraints and make highly questionable the company's ability to adequately service its debt obligations in a timely manner in accordance with scheduled interest payment dates) absent a near-term amendment.

The company's fundamental business operations remain relatively sound, nonetheless, with third quarter 2003 revenue and EBITDA only 2% and 1% lower over the same prior-year period. However, the company recorded $5 million in cash at the end of September and $24 million remaining under its bank revolver.

Moody's said the company is likely to exhaust its liquid resources by second quarter 2004, if it is unable to count upon the continued availability of its revolving credit facility. The company represents that it is currently in compliance with its financial covenants.

The review will consider the probability of near-term default under the company's debt obligations, the options available to WRC to address its currently anticipated liquidity shortfall, including the possibility of bankruptcy proceedings, and the recovery prospects expected for creditors. Based upon Moody's current assessment, debtholders, especially senior subordinated debt holders, are unlikely to receive full recovery in a distress scenario.

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