OREANDA-NEWS. Fitch Ratings has downgraded French media group Solocal Group SA's (SLG) Long-Term Issuer Default Rating (IDR) to 'C' from 'CC'. At the same time the agency has downgraded the senior secured bonds issued by PagesJaunes Finance to 'C'/'RR4' from 'CCC-'/'RR3'.

The downgrades reflect management's announced plans to restructure debt, include an equity rights issue of up to EUR400m, debt for equity exchange and write-down of existing borrowings, the gross amount of which currently stands at EUR1,164m. The company has indicated its aim of reducing net debt/EBITDA to 1.5x from the current 4.2x and outstanding debt to EUR400m from EUR1,164m at present.

KEY RATING DRIVERS

Debt Restructuring

The range of outcomes outlined by management is dependent on the take-up of the rights issue, imply a write-down of existing debt ranging from around one third to two thirds of gross debt outstanding. Any anticipated write-down is consistent with a 'C' rating, the definition of which includes the formal announcement of a distressed debt exchange.

Recoveries Based on Range of Outcomes

The PageJaunes bonds have been downgraded to Recovery Rating 'RR4' given the range of recoveries implied by the restructuring plans, albeit subject to the level of take-up of the rights issue. An 'RR4' rating implies a recovery of between 31% and 50%. Fitch has made no assessment of the likely outcome of the rights issue; the RR4 rating is intended to reflect that recoveries within the RR4 range are possible.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to negative rating action include:-

- Downgrade to 'RD' (Restricted Default) will occur upon completion of the debt restructuring.

There are no upgrade sensitivities at this time; the existing capital structure will cease to exist upon completion of the restructuring.

LIQUIDITY

At end-June 2016 SLG had cash and equivalents of EUR111m, having fully drawn down its bank revolving credit facility. The company continues to generate free cash flow and liquidity at present is acceptable. The next interest payment date on the bank debt is scheduled for December, by which time the restructuring is expected to have taken place.