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To: IceShark who wrote (58033)	8/25/1999 5:05:00 PM
From: Cynic 2005	Read Replies (1) \| Respond to of 86076

Wednesday August 25, 12:17 pm Eastern Time Moody's cuts Source Media Inc. rating (Press release provided by Moody's Investors Service) NEW YORK, Aug 25 - Moody's Investors Service lowered the debt ratings for Source Media Inc., including $100 million of senior secured notes due 2004 to Ca from B3 and $20 million of senior pay-in-kind preferred stock to ''c'' from ''caa.'' The senior implied rating for Source Media has also been lowered to Ca, and the rating outlook is negative. This concludes Moody's review that began July 1999. The lower ratings reflect Source Media's significant leverage, poor operating performance and rapidly deteriorating credit profile; liquidity concerns regarding the company's ability to meet cash interest payments due on its senior secured notes after November 1999, when the company's escrow account has been depleted; and resultant expectations of diminished recovery prospects for the company's creditors. The negative outlook further incorporates Moody's view that the company will be burdened by extremely limited financial flexibility and faces significant near-term challenges relating to executing improvements in the IT Network and successfully implementing the roll-out of the Interactive Channel in a timely manner. On a LTM basis at June 30, 1999, Source Media generated $24.2 million in revenues and incurred an EBITDA loss of $16.5 million. The company does not have additional debt facilities to draw upon and the performance of its IT Network, which is currently the sole generator of revenues, continues to be weak, with diminimous cash flow. The company had approximately $13.9 million in cash, of which $6 million related to escrowed funds to meet the November 1, 1999 interest payment. As such, the company is solely reliant on cash on hand and potential (but currently out of the money) warrant proceeds to meet its future interest expense. Moreover, current operating trends within the IT Network business do not suggest material improvement. Moody's notes that Source Media has announced a definitive agreement with Insight Communications (''Insight'') to enter a 50/50 joint venture to conduct all lines of business relating to the company's ''Interactive Channel.'' As part of the proposed terms, Insight will make a $12 million equity injection into Source Media, as well as contribute $13 million in cash to the new joint venture. In Moody's opinion, concluding the transaction with Insight is imperative to Source Media continuing as a going concern, at least over the near term as the additional cash should provide necessary funds to meet interest payments into 2000. Moody's does not anticipate any dividends from the joint venture over the medium term to augment the company's liquidity, and suggests that the IT Network business alone is insufficient to carry the company's significant debt service obligations beyond this timeframe, absent a full scale restructuring and likely conversion of debt to equity. To meet interest payments in 2000, Source Media is completely dependent upon the success of the Interactive Channel to either attract additional MSO equity sponsors or stimulate growth in the company's stock to preserve the potential liquidity that would be afforded by the exercise of certain outstanding warrants. Moody's recognizes the mass media potential of the Interactive Channel and many of its unique features, but it also recognizes that the product remains at an embryonic roll-out stage and ultimate success of the product remains highly uncertain, given the product's unproven value, dependence on additional cable operators for mass distribution and lack of revenues to-date. Potential competition from other companies offering similar interactive products, notably WebTV and WorldGate for television internet access, also contributes to the uncertainty surrounding the ultimate success or failure of the product. The ratings also take into account the increased default risk and expected loss severity, as a result of the above mentioned concerns. Source Media's balance sheet is weak, with substantial indebtedness and minimal assets. As at June 30, the company had total assets amounting to $43 million, of which $13.9 million was the cash component and $16.5 million related to intangibles. As part of the proposed terms relating to the Insight joint-venture, certain of Source Media's intangible (and what Moody's believes to be more highly valuable) assets are expected to be transferred to the new company, thus further weakening the existing collateral position. Nothwitstanding, Moody's believes creditors would benefit indirectly from the residual equity value associated with their 50% interest in the joint-venture. Dallas, Texas-based Source Media, Inc. provides on-demand information, services and programming through the telephone and cable television to mass market consumers. biz.yahoo.com