Moody's must have gotten wind of the HM Riverdeep acquisition of Harcourt. Spies in the right places, no doubt. Sad to say, but it's an ill wind that's now blowing, because Moody's is thinking about downgrading the credit rating for the whale-swallowing minnow.
Walk into a bank and ask for a mortgage and the bank will want to know how much you already owe. That's about what Moody's is doing to Barry O'Callaghan's project. He owes $2.4 billion, he wants to borrow more, so what are the odds that he'll default somewhere down the line? The more risk you incur, the more you pay, because the loan giver wants a greater reward for taking a bigger risk.
The ratings service will examine the "pro-forma capital structure" of HM Riverdeep, to see if Mr. O'Callaghan is truly going to deliver on the synergies he promised, and when he might expect to realize some debt pay down. With current debt at B3 and B1, a further decrease would not be desired by the HM Riverdeep directors. When they go, hat in hand, to Citibank and Credit Suisse for the next loan, they do not want that loan to cost HM Riverdeep more than now anticipated. There is a limit to the amount of interest that can be paid and still make the Harcourt acquisition viable.
Barry O'Callaghan clearly wants his plans to succeed. Irish business is rooting for him, the local boy who made it big...made an Irish company one of the biggest in the world. He's under pressure now, with Moody's little fishing expedition, to get those synergies flowing and show some positive progress, or the Harcourt deal could be endangered.
So where will he start cutting?