Moody's: Fotolia loans Ba3, Caa1

Moody's Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to Fotolia Holdings, Inc., a Ba3 (LGD3, 31%) rating to its proposed $200 million first-lien senior secured term loan and a Caa1 (LGD5, 85%) rating to its proposed $100 million second-lien senior secured term loan. The outlook is stable.

The proceeds of the new loans are expected to be used to refinance existing debt and to fund a $161 million special dividend.

The agency said Fotolia's B2 corporate family rating reflects very high leverage. Once the proposed dividend transaction closes, Moody's estimates the company's pro forma debt-to-EBITDA ratio will be 6.6 times (including Moody's standard adjustments). The agency also believes event risk is high based on the company's ownership by financial sponsors, track record of distributions and strategy to expand in other countries. Finally, the microstock imagery company's ratings also consider the increasing supply of lower-priced digital imagery and potential threats from existing and new competitors or technologies, the agency said.

The company benefits from a highly variable cost structure, reported EBITDA margins in excess of 45% and strong free cash flow conversion, Moody's said.

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