Moody's drops Reader's Digest

Moody's Investors Service said it downgraded the Reader's Digest Association's corporate family rating and probability of default rating to Caa3 from B3, the senior secured credit facility ratings to Caa2 from B2 and the senior subordinated note rating to Ca from Caa2.

According to the agency, the downgrades reflect Moody's expectation that weak projected EBITDA will make it increasingly difficult to maintain covenant compliance and sustain the existing capital structure, factoring in the broadening global decline in consumer spending and the erosion in the company's mature print-based publishing products and despite Reader's Digest's efforts to reduce costs and develop new digital and publishing revenue streams that build upon its broad food, health, home and lifestyle-related content capabilities.

Moody's said it believes the very high leverage and negative free cash flow generation diminish the likelihood that the company would be able to obtain a credit facility amendment.

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