When Yellow Media sold off Trader Corp., the unit that owns Auto Trader, most people believed the company was selling its best asset in a cash grab.
That belief still holds, but the strength of Trader Corp. as a standalone company could have been overstated at the time.
Now that it has been spun out, Trader Corp. is trying to raise cash by marketing a new high yield issue. To do that, it needed its own debt rating, and Moody's Investors Service happily obliged to produce one. Yet the rating agency's report isn't so endearing.
Moody's has trouble wrapping its head around the company's strength as it moves into the digital environment.
"While this is a plausible proposition that has been successfully executed in the U.K. and elsewhere using the Trader brand, there is some uncertainty that the same formula can be applied in Trader's circumstances in Canada," the rating agency noted.
"Trader will have to grow its per digital customer yield and increase market penetration, neither of which is a given."
Moody's ultimately slapped a B3 rating on the name.
Still, Moody's does give Trader Corp. some credit for holding a first mover advantage in Canada, as well as its ability to replicate a successful U.K. blueprint. "However, the rate of progress is entirely speculative."
That being said, private equity player Apax Partners saw enough potential in Trader Corp. to scoop it up from Yellow Media for $745-million in March. At the time, Standard and Poor's had recommended that Yellow Media lower its debt by $450-million in 2011, or risk losing its investment grade status, prompting it to shop the asset around.
Yellow Media originally purchased the Trader assets for a total of $1.2-billion.
Tim Kiladze