MoodyÃ¢â‚¬â„¢s, S&P rate Monitronics debt
DALLAS - Two well-known ratings firms released reports on Monitronics InternationalÃ¢â‚¬â„¢s debt last month. The results, however, were mixed, as MoodyÃ¢â‚¬â„¢s gave a Ã¢â‚¬Å“stableÃ¢â‚¬Â rating, while S&P gave a Ã¢â‚¬Å“negativeÃ¢â‚¬Â rating to the company based on its $525 million in outstanding credit facilities.
The MoodyÃ¢â‚¬â„¢s rating was based on what it said was the competitive nature of the alarm monitoring business, naturally high customer and dealer churn rates, potential for increased price-based competition and the companyÃ¢â‚¬â„¢s high leverage. MoodyÃ¢â‚¬â„¢s also considered Moni-tronicsÃ¢â‚¬â„¢ high margins, low capital expenditures and attractive business strategy in its rating.
As a positive, MoodyÃ¢â‚¬â„¢s pointed to the companyÃ¢â‚¬â„¢s free cash flow of more than $50 million, as of June 30. This compares favorably with capital expenditure requirements of only about $2 million during that same time.
The S&P report, on the other hand, highlighted MonitronicsÃ¢â‚¬â„¢ high customer-acquisition costs, which have averaged more than 75 percent of the companyÃ¢â‚¬â„¢s total revenues over the last three years as it has battled attrition rates of about 12 percent annually.
Ã¢â‚¬Å“We see customer-acquisition costs as an essential part of MonitronicsÃ¢â‚¬â„¢ business,Ã¢â‚¬Â said S&P credit analyst Edward OÃ¢â‚¬â„¢Brien. Ã¢â‚¬Å“We expect internal cash flow to be sufficient to fund these customer account purchases to offset attrition, but growth will continue to be debt-financed.Ã¢â‚¬Â
Despite the negative rating, S&P did point out that attrition rates have slowed in recent years and that industry growth trends remain favorable.
For the quarter ending March 31, Monitronics posted net income of $128 million and pro froma debt of about $375 million.