Moody's downgrades Checkout, rates loans B1, Caa1

Moody's Investors Service said it lowered Checkout Holding Corp.'s corporate family rating to B3 from B2, lowered its probability of default rating to B3-PD from B2-PD, assigned a B1 (LGD2, 28%) rating to its senior secured first-lien credit facility and assigned a Caa1 (LGD5, 77%) rating to its senior secured second-lien credit facility. The outlook is stable.

Checkout Holding is the parent company of Catalina Marketing Corp.

The agency said the downgrade is based on Berkshire Partners LLC's plan to purchase a majority stake in Catalina from Hellman & Friedman LLC and repay all existing debt. In conjunction with the buyout, Moody's expects PDM Intermediate Holdings B Corp., an entity created to execute the transaction, to issue unsecured PIK toggle notes.

Moody's said the B3 corporate family rating is driven by the company's pro forma high leverage, which the agency estimates at about 7.8 times.

Despite the heavy debt load, Moody's expects the strong EBITDA margin and non-cash interest on the new PIK toggle notes to facilitate positive free cash flow, which, together with expectations for an undrawn $100 million revolver with no financial maintenance covenants unless drawn, supports liquidity and minimizes default risk.

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