Daily Mail & General Trust Ratings On Watch Negative On Potential Reorganization
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Research Update:
Daily Mail & General Trust Ratings On Watch
Negative On Potential Reorganization
July 19, 2021
Rating Action Overview
PRIMARY CREDIT ANALYST
- U.K.-based diversified media group Daily Mail & General Trust plc (DMGT)'s credit profile could Alex Roig, CFA
weaken, in our view, following the potential sale of its insurance risk business (RMS) and London
reorganization. + 44 20 7176 8599
Alex.Roig
- The group has also announced that controlling shareholder, the Rothermere family (through the @spglobal.com
Rothermere Continuation Limited [RCL] fund), could make a cash offer to acquire the shares in
SECONDARY CONTACT
DMGT that it does not already own.
Alexandra Balod
- We are placing our ratings on DMGT and its senior unsecured debt on CreditWatch with London
negative implications. + 44 20 7176 3891
alexandra.balod
- The CreditWatch reflects our view that if the RMS sale and the take-private transactions go @spglobal.com
ahead, the group's business and credit metrics could weaken. We will reassess DMGT's credit
standing once we have more details on the reorganization, and its potential implications for the
group's capital structure.
Rating Action Rationale
The CreditWatch placement reflects our view that if the announced disposal of RMS and
potential reorganization of DMGT went ahead, its business profile and credit metrics could
weaken. On July 12, 2021, DMGT announced that it has received offers from potential buyers for
its insurance risk business, RMS. We understand that, over the next three-to-six months, DMGT
could complete the disposal (likely in Q3 2021), participate in the IPO of Cazoo (a used cars online
sales business, in which it currently owns an approximately 20% stake), and distribute a special
dividend to its shareholders. The special dividend would consist of cash proceeds from the RMS
sale, a portion of cash on balance sheet, and the approximately 16% equity stake in Cazoo that
DMGT would own post IPO. DMGT's main shareholder, the Rothermere family (through its RCL
fund), could also make a firm cash offer for the 70% nonvoting A shares in DMGT that it does not
currently own, with an implied enterprise value of £810 million. We understand that this offer
would be conditional on the RMS sale and Cazoo IPO successfully completing, as well as reaching
an agreement on satisfactory terms with the pension trustees.
www.spglobal.com/ratingsdirect July 19, 2021 1Research Update: Daily Mail & General Trust Ratings On Watch Negative On Potential Reorganization In our view, the RMS disposal, together with the sale of the ed tech business completed earlier in 2021, would weaken DMGT's business profile. The RMS sale would further reduce the group's scale, scope, and diversity of operations, following other large asset sales DMGT has completed over the past three years. It would also increase the group's exposure to the consumer media business segment's structural challenges and weaken its profitability metrics. RMS gave the group stable and predictable organic revenue growth and earnings, and partly offset declining print and volatile advertising revenues in the consumer media business. We estimate that for the financial year (FY) ending Sept. 30, 2021, RMS will have generated about 20% of the group's revenue and 40% of adjusted operating profit. Assuming the sale completes, we estimate DMGT's FY2022 S&P Global Ratings-adjusted EBITDA could decline to about £110 million-£120 million compared with the £160 million we forecast previously and the £150 million we expect in FY2021. We also estimate the group's S&P Global Ratings-adjusted EBITDA margin--already below average compared with peers in the media--would slightly weaken to about 12% from 13%. As a result, DMGT's adjusted leverage could increase to about 3x in FY2022, leaving no headroom under the 'BB' rating. Assuming the current capital structure remains after the disposal, we estimate that DMGT's S&P Global Ratings-adjusted debt to EBITDA could increase to about 3x in FY2022 (following the RMS sale) and remain above 2.5x thereafter, about 0.5x-0.7x higher than we previously projected. DMGT's S&P Global Ratings-adjusted debt includes £224 million of gross debt (end-FY2021 projection), £95 million in financial leases, and other minor adjustments. We don't net the cash on balance sheet; we assume this is available for working capital and operational needs, pension funding requirements, and bolt-on acquisitions over time. We also understand that under the transaction the group does not intend, and is not required, to redeem the £200 million senior unsecured bonds due 2027. We think this could leave DMGT with no headroom under the current 'BB' rating, which has a debt-to-EBITDA trigger of 3x for a downgrade. Following the RMS disposal, we would also likely reassess our view of the group's business and positioning versus rated peers. Considering the reduced scale and diversity of its operations, we could tighten our debt to EBITDA trigger of 3x for a downgrade. We will reassess our base case and our view of DMGT's financial policy and capital structure if its controlling shareholders make a firm offer for the group. We understand that a firm offer by RCL to acquire DMGT would only be considered if the RMS sale and the Cazoo IPO complete, and upon reaching an agreement with the pension trustees. Our rating on DMGT and our assessment of the group's management and governance already incorporates the Rothermere family's 100% voting control of DMGT, and the lack of sufficient oversight from the independent board members. We also note that the group has so far maintained relatively low financial debt on balance sheet. However, if DMGT were de-listed and continued to operate as a private company, we would need to reassess our base case, its capital structure, and financial and dividend policy, on which we lack clarity at this stage. CreditWatch In resolving the CreditWatch placement, we will reassess the strength of DMGT's business following the sale of the RMS business. Depending on our assessment, we may change our view of the strength of the business and adjust our leverage thresholds accordingly, and could lower the rating. We expect to do this in Q3 2021 after the RMS sale completes. We will also reassess our base case, and the group's financial policy and capital structure, if RCL makes a firm offer and proceeds with taking DMGT private. www.spglobal.com/ratingsdirect July 19, 2021 2
Research Update: Daily Mail & General Trust Ratings On Watch Negative On Potential Reorganization
If the RMS sale, Cazoo IPO, and potential take-private transactions are not completed as planned,
we would reassess our CreditWatch accordingly.
Company Description
DMGT is a U.K-based diversified media group operating B2B information operations and consumer
media divisions. Within the B2B segment, the group's operations span insurance risk management
(RMS, which provides catastrophe risk modeling services), property information (Landmark and
Trepp brands), and global B2B events and exhibitions, with a particular focus on the energy,
construction, and hotel and hospitality sectors. In consumer media, the group operates the Daily
Mail, The Mail on Sunday, Metro, the i newspapers, and MailOnline, as well as the recently
acquired New Scientist publication. DMGT also operates a venture capital arm, dmg ventures,
under which it currently holds its Cazoo stake.
The group is publicly listed on the London Stock Exchange. Lord Rothermere and his family own
36% of the group's shares, including 100% of ordinary voting shares and 30% non-voting A
shares.
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate
Issuers, Dec. 7, 2016
- Criteria | Corporates | Recovery: Methodology: Jurisdiction Ranking Assessments, Jan. 20, 2016
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities, Nov. 13, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Ratings List
Ratings Affirmed; CreditWatch/Outlook Action
To From
Daily Mail & General Trust PLC
Issuer Credit Rating BB/Watch Neg/B BB/Stable/B
Senior Unsecured BB/Watch Neg BB
www.spglobal.com/ratingsdirect July 19, 2021 3Research Update: Daily Mail & General Trust Ratings On Watch Negative On Potential Reorganization
Ratings Affirmed; CreditWatch/Outlook Action
To From
Recovery Rating 3(65%) 3(65%)
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of
S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at
https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings
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www.spglobal.com/ratingsdirect July 19, 2021 4Research Update: Daily Mail & General Trust Ratings On Watch Negative On Potential Reorganization
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