Moody's Credit Opinion on Sorenson as a Investment
Sorenson VRS is going through the bankruptcy process but has not been out yet (As of May 1, 2014) but there has already been deliberation by Moody's Investors Service about their investment risk.
Moody's Investor Service (Moody's) is a credit rating business and is in the business of providing financial research on bonds by commercial/government entities. It is considered one of the "Big Three" credit rating agencies along with Standard & Poor and Fitch Group.
They have given Sorenson a rating of Caa2. For those that don't understand what that means:
Sorenson Communication’s new board did not return our calls for explanation on Moody’s Credit rating on their company, and to see why they chose to do an interest only payment on their debt instead of trying to pay down the debt principal of $1.2 billion plus interest, forcing them into a balloon payment in 2020. The balloon payment was the initial reason of Sorenson’s bankruptcy filing since they anticipated failure of paying the balloon payment due in October 2014 of $735 million dollars.
On April 22, 2014, Daily Bankruptcy review by DOW Jones (author: Stephanie Gleason) says the same thing as Moody's.
Gleason says that the plans of restructuring this time around focuses on shifting ownership to senior bondholders but does not reduce the company's debt which is one of the reasons why Sorenson filed for bankruptcy in the first place. This plan only ensures that they have five to seven more years to pay off their debt.
The senior lenders (who are owed $550,000,000) are being repaid in cash in full. This allows them to walk away from the company and instead, Sorenson is lining up another $550 million dollars in debt which includes a revolver of $25 million dollars.
Final statement is that Sorenson is exiting bankruptcy with $1.2 billion dollars in debt and continues to get Moody's affirmed rating of Caa2 which has not changed since Sorenson went into bankruptcy.