Moody's lowers Reader's Digest outlook to negative

Moody's Investors Service said it changed the outlook for The Reader's Digest Association, Inc.'s Ba1 corporate family rating and Ba2 senior unsecured note rating to negative from stable and affirmed the existing ratings.

The change in the outlook reflects that the company's more aggressive financial policies could lead to higher-than expected leverage over the near to intermediate term, the agency said.

Moody's said it anticipated that the company would use free cash flow for a balanced combination of debt reduction and share repurchases and that the company would not complete any significant debt-financed acquisitions, noting that continued debt reduction is important to moderate the high level of business risk and low operating margins associated with the company's mature publishing assets.

The agency added it is also concerned that heightened competition is leading to weaker-than-expected operating performance in the Books Are Fun (BAF) business, which triggered a $188 million goodwill write-down in the second fiscal quarter and will challenge the company's ability to execute a turnaround in BAF's operating performance.

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