Time Inc., the publisher of the namesake magazine whose first issue ran in 1923, is seeking a type of loan typically issued to investors that buy junk-rated debt as it prepares to be spun off from its parent.
The worst-performing unit of Time Warner Inc. wants $900 million of financing in the form of a so-called term loan B, a type of debt typically sold by companies with speculative-grade ratings, according to a person with knowledge of the deal, who asked not to be identified without authorization to speak publicly.
Citigroup Inc. is arranging the transaction and is hosting a meeting with potential lenders at 10 a.m. Tuesday at Time Warner’s headquarters in New York, the person said.
Time, which also publishes Sports Illustrated, People and Fortune, is facing a decline in print-advertising revenue and newsstand sales as more readers move online. An investment-grade rating is unlikely given the level of proposed leverage at the company, according to Dave Novosel, a Chicago-based analyst with Gimme Credit LLC.
“The key to survival would be having low leverage,” Novosel said in a phone interview. “The industry is in a secular decline.”
Novosel said Time’s leverage will be “fairly high” at about three times earnings before interest, taxes, depreciation and amortization, based on Time Warner’s expectations for the new magazine company to carry $1.3 billion of total debt. An investment-grade rating is unlikely at the level and lenders will be evaluating the measure with “more discretion” due to the industry’s poor prospects, he said.
The separation of the largest U.S. magazine publisher from Time Warner is expected to be completed by the end of June, according to the parent’s website.
Teri Everett, a spokeswoman for Time Inc., declined to comment on the loan.
Chief Executive Officer Jeffrey Bewkes has focused Time Warner’s growth on television and film, spinning off AOL Inc. and Time Warner Cable Inc. soon after becoming CEO in 2008. The company’s plans to separate from Time Inc. were announced in March 2013.
The magazine publisher’s operating income dropped 20 percent to $337 million last year, while Timer Warner’s cable networks, HBO and Warner Bros. film segments all rose, according to an earnings statement on Feb. 5.
Gannett Co., the publisher of USA Today that has junk-grade ratings of BB by Standard & Poor’s and Ba1 by Moody’s Investors Service, was levered at about 4 times Ebitda at the end of last year, according to Gimme Credit. The company’s leverage will decline to 2.7 times this year as the earnings from its $1.5 billion purchase of TV broadcaster Belo Corp. in December flows into the business, according to Novosel. That assumes no debt repayment.
Time Warner’s shares fell 2.6 percent today to $64.79.
--With assistance from Edmund Lee in New York.
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