"Mood Media is the global leader in elevating Customer Experiences, combining sight, sound, scent, social mobile technology and systems to create greater emotional connections between brands and consumers. Mood’s solutions reach over 150 million consumers each day through more than 500,000 active client locations around the globe. Mood’s clients include businesses of all sizes and market sectors, from the world’s most recognized retailers and hotels to quick-service restaurants, local banks and thousands of small businesses." From the LinkedIn Profile.
Mood Media, Inc. brings piped in sounds to retailers worldwide. The publicly-traded Company (ticker:MM) is in the midst of a two year turnaround in a highly competitive sector that has been undergoing rapid technological change. Moreover, the Company is highly leveraged.However, with both public status and publicly rated debt, information is readily available. Several BDCs (see the Table) have exposure in the form of secured and unsecured debt due in 2019 and 2020 respectively for an aggregate of $125mn. That's according to Advantage Data records. The BDCs with the greatest exposure ($89mn) are Fs Investment (FSIC) and non-traded FS Investment II. As of September 2016, the secured debt was marked down just marginally, but the 2020 Unsecured Notes have been discounted by a fifth. Still, that's an upward trend from the prior 3 quarters when the discount was up to 35%. Management has been claiming success in improving sales, EBITDA and free cash flow on recent earnings calls. Nonetheless, the stock trades at 8 cents on the Toronto Stock Exchange. In a Worst Case we calculate a $420mn Enterprise Value for the Company versus $620mn in debt outstanding and the possibility of $200mn in credit losses, principally in the junior debt, or an additional 37% discount from the current level. However, the BDC Credit Reporter is not convinced, and we have the benefit of the latest earnings release (November 16). Revenues were down on prior year, as was EBITDA for the quarter and for the year vs expectations. Free Cash Flow is up but only due to lower capital expenditures, and remains at barely break-even over the year. As a result the Company has made no progress on reducing a debt load of $620mn which begins to come due in 2019. Liquidity is only OK with $21mn in cash and $8mn under its Revolver. Back in April 2016 Moody's downgraded the Company to Caa1 and said the "company's capital structure may not be viable" without major progress. In November, the Company's lenders in an amendment left alone an interest coverage ratio that was scheduled to otherwise increase, a sure sign that performance was not on the originalplan. We have a Corporate Credit Rating of 4, implying we believe an ultimate loss is more likely than full recovery. Moreover, we are marking the Credit Trend as Down given that both tranches of debt trade and the junior position is at a higher discount than at September quarter end. In our view, the BDC valuations here-both senior and junior-are unduly optimistic and there is much room for potential downside write-downs.