Yet More Print Optimism: Moody’s Upgrades Direct Mail and FSI Distributor Valassis

By: Mark Fitzgerald

In another sign of growing Wall Street confidence in a rebound in print advertising, Moody’s Investors Service on Friday upgraded Valassis Communications Inc.’s credit rating to just below investment grade.

Moody’s noted that the big direct mailer and free standing insert (FSI) distributor recently amended its senior secured credit agreement with a commitment to use a portion of a $500 million litigation settlement to pay down debt. Combined with improving revenues the company’s debt-to-EBITDA ratio could drop below 4 times, Moody’s calculates.

In February, Livonia, Mich.-based Valassis settled lawsuits against New Corp.’s News American Marketing (NAM), which paid $500 million in cash and entered into a 10-year agreement to distribute FSIs through the Valassis shared-mail program.

In a scenario analogous to the newspaper chains it both partners and competes with, Valassis debt ballooned when it acquired a big direct mail player, Advo, in March 2007. But Moody’s notes that since then it has paid down $375 million in debt and reduced its leverage ratio to 4.2 times from 6.2 times.

Moody’s upgraded Valassis’ corporate family rating (CFR) to Ba3
from B1. The new rating is the highest speculative-grade, or junk, notch.

“Valassis’ Ba3 CFR reflects its ability to generate cash flow from good market positions in a broad array of largely print-based marketing services, its considerable scale and reach in its business lines (99% of total U.S. households), good customer diversity and modest debt-to-EBITDA leverage,” wrote senior analyst John E. Puchalla. “The rating is further supported by the company’s target for a more moderate leverage profile, with a net debt-to-EBITDA target of 3.0 times (excluding Moody’s standard adjustments).”

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