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LOS ANGELES, May 12, 2013 – Heir apparent Cooper Hefner joined the fete for three artists and their centerfold model, Raquel Pomplun, as the magazine works to reinvent itself as an upscale men’s outlet.

This past week, Standard & Poor’s rewarded the efforts with an upgrade in a new secured-lending facility — which includes a $10 million revolver due in 2016 as well as the $185 million term loan due in 2017 — with an upgrade of its debt rating to B, one notch higher than the B- it had before the revamp.

The overall corporate credit rating was bumped up to B- from CCC+, removing it from the junk- bond rating.

“We think they will have at least a 15 percent cushion with their EBITDA for the next year,” said Daniel Haines, an analyst who follows Playboy Enterprises for S&P.

The company has been radically changing for several years. It closed its corporate HQ in Chicago last year, and its founder, Hugh Hefner, is now only editor-in-chief of the magazine. Scott Flanders replaced Hef’s daughter Christie as CEO in 2009 and has accelerated changes in recent years.

Its once mighty flagship magazine is a shadow of its former self, losing about $6 million a year domestically, but breaking even on licensing brands from 30 overseas versions. Its soft-core TV network, Spice, was sold to Internet porn giant Manwin.

Flanders had told the Wall Street Journal in February that Playboy “would be well positioned to pursue a public offering at the end of 2014.” He declined to be interviewed for On the Money on whether that was still in the cards. –Keith J. Kelly

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Source: New York Post

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The term loan has been upsized by $10 million, to $185 million, with incremental proceeds available for general corporate purposes. The LIBOR floor has been flexed lower, to 1.25%, from 1.5%, while the L+600 spread and 98.5 issue price are in line with initial talk. Allocations are expected early next week.

The existing deal’s February 2017 maturity isn’t being altered.

An accompanying revolver is sized at $10 million, sources noted.

Playboy originally came to market in February 2011 to support the buyout by co-investors Rizvi Traverse and Hugh Hefner’s Icon Acquisition Holdings. Jefferies arranged that financing, which included a $185 million, six-year term loan that was issued at 98 and is priced at L+650, with a 1.75% LIBOR floor. It is non-callable in the first year, followed by 102, 101 call premiums in years two and three, respectively. The take-private offer valued the Chicago-based media company at $362 million.

The existing loan is currently callable at 101.

The new loan has been rated B with a 2 recovery rating from Standard & Poor’s. The agency earlier this year downgraded Playboy to CCC+, citing expectations that the company would violate its one-time minimum-EBITDA test for the year ended June 30, but has now placed the issuer on CreditWatch with developing implications and said it likely would raise Playboy to B- on completion of the refinancing.

Moody’s hasn’t yet weighed in the refinancing, but earlier said it expected an equity cure and continued to rate Playboy at B2. The sponsor isn’t exercising the equity cure, but the minimum-EBITDA test has been dropped from the proposed credit, sources noted. – Chris Donnelly

Source: Standard & Poor’s

- It’s important to remember that we are in year one of a three-year brand revitalization, particularly in North America.

- And a year into this process, we have made some important improvements and pursued some bold moves.

- There’s no question that we know more today than we did a year ago and we are constantly recalibrating our approach to reflect those learnings.  That’s not only a good thing; it’s a deliberate thing.  We are – and will always be – a learning organization.  As such, we will constantly evolve our thinking, refine our plans and adapt our approach to the situation and the circumstances.  But, we need to do this in a way that is consistent with a clear and articulated strategy and vision.

- Fundamentally, our strategy and vision remain the same.

- We continue to believe that our strategy of moving from a media-centric company to a brand management company is absolutely correct; and

- We continue to believe that our vision is right and true … that Playboy Enterprises’ objective is to be one of the world’s leading producers and providers of a modern aspirational lifestyle.  The company does this through a portfolio of brands that produce content, product, and experiences.

- The difference is in the choices we’re making and our increased focus on planning and execution.  Our focus for this year is in three areas:

- Rebuilding the brand in North America;

- Driving sustainable and strategic licensing revenue; and

- Delivering operational excellence.

REBUILDING THE BRAND IN NORTH AMERICA

- One of the most significant recalibrations of the past year is the work we have done to move the company toward being much more consumer focused.  If we really want to be a consumer brand that can pull licensing and create aspirational appeal, then we need to be much more strategic, much more consumer-centric and much more focused on brand building.

- That’s why we invested in significant benchmarking and brand tracking studies over the past year or so.

- And based on this tracking, we know that Playboy has extraordinary brand awareness (97% unaided awareness globally).

- But it is a brand that is significantly misunderstood, especially in North America.

- We are working to build a brand that is real, lasting and credible by identifying our strengths and weaknesses relative to an aspirational competitive set and building a plan that is all about highlighting and building on our strengths, while mitigating and inoculating against our weaknesses and vulnerabilities.

- We are working to build a new brand, grounded in Modern Heritage, that will expand our appeal to the two most powerful consumer groups in North America: Women and GenY.

- We are working to Attract, Retain and Activate our consumers.

- And we are working to engage our consumer in a new kind of relationship that will be lasting and more lucrative than before.  And we know that consumers – particularly women and GenY – want to be engaged with a brand that shares their values and inspires them.

- The values that Playboy has stood for throughout its history – and will continue to stand for going forward are:

- Aspirational Lifestyle;

- Social Responsibility; and

- High Quality Product(s)

- These values should serve as a guide for our business – a North Star that helps direct us when making decisions.  In that regard, they can be a filter for how to operate, who to partner with, and what to communicate.   Everything we do should reinforce these values or at least some combination of them.  While not every action can represent all three values at the same time, no action we take can be inconsistent with any of them.

- Rebuilding this brand in North America won’t be easy, but we are making progress.  As we continue to learn and grow as an organization, we know that altering brand perception is going to take time, commitment and sensitivity.

- We have built a new brand perception and now we must reinforce it with proof points.  Our Marketing team is single-mindedly dedicated to this task.  We are launching several high profile initiatives this year, maximizing our existing activities to deliver enhanced results through focused marketing and PR and launching a social purpose platform that demonstrates the values.

- We also need to be committed to taking this on across the organization.  That means being willing to invest in new initiatives in North America that will drive ‘brand pull’ and aligning all aspects of the company to deliver against and demonstrate the vision and values … while we continue to drive revenues internationally through publishing and licensing.

- Finally, we need to be sensitive to the fact that actions we take that run counter to this brand strategy can have an exponential impact and make it more difficult to rebuild the brand.  Changing perceptions about brands is difficult and everything that reinforces current negative perceptions will make it even more difficult to turn that around.  The current approach to Playboy.com is a good example of a challenging area for us, and we are exploring ways to get alignment with this important platform.

- Doing this effectively and in a disciplined way will position us with consumers in North America to focus on driving sustainable and strategic licensing revenue.

DRIVING SUSTAINABLE AND STRATEGIC LICENSING REVENUE

- As I said, we have learned a lot over the past year and that is as true in our licensing business as anywhere else.

- We began by being hyper aggressive about getting deals done. That led to some important growth in key areas, which has been critical.

- As we evolve our thinking we need to continue to deliver revenue growth through our international operations (both licensing and the magazine), while at the same time focusing more strategically on deals in North America that will deliver lasting and strategic value to the enterprise.

- We have made important progress and we will continue these efforts throughout this year and beyond.

- Our primary strategic driver in licensing this year is to focus on core categories that are ownable for Playboy and game changers from a brand perception standpoint:

- One significant opportunity in this area is lingerie.

- It is an area that is natural for Playboy

- If this is done tastefully and respectfully, it will be a change agent for the brand, demonstrating the values, and opening the door to Women as a powerful driving consumer for us.

- This category is wide open for another strong brand that delivers high quality and sets an aspirational tone.

- This is a very exciting area for us and one that we will need to focus on intensely and invest in strategically to maximize the impact it can have – financially and reputationally.

- We are also about launch a new menswear line with an iconic New York gentlman’s brand

- This will help us define Playboy men’s product with men’s bespoke suits and follow in suit with a men’s line in 2014—for the launch we are focused on 5 easy pieces that are representative of quintessential items for a gentleman’s wardrobe

- In each of these cases, we are pursuing licensing deals that are strategically aligned with the brand that we want to be and that can deliver long-term, sustainable revenues.

- To that end, we need to be very careful to avoid doing anything with our licensing strategy (in North America especially) that could compromise the ‘brand pull’ objective.

- We need to focus on revenue – without a doubt – but we have to avoid the temptation to chase short-term revenue that could compromise long-term, sustainable and strategic revenue.

- Getting this balance right is all about operational excellence.

DELIVERING OPERATIONAL EXCELLENCE

- As you know, we have made significant progress in improving the operations at Playboy over the past few years, especially in the last 12 months.

- Hiring David Israel as President of the Media business was an important step in this direction.

- David is already doing great work by focusing on the details of the business and moving us closer toward operational excellence in that area.  A few examples of what he is focusing on:

- Partnering with Manwin to align that relationship in line with our strategic priorities;

- Partnering with AMI to maximize efficiencies and increase revenues

- Moving forward, David will continue to deliver excellence in execution, with a focus on two operational priorities:

- Continuing to transition the media group from a print/magazine business to a content business in a single, integrated media department, with the ability to distribute our content across multiple platforms including the digital space, apps etc.

- Taking a more holistic approach to media sales, encouraging advertisers and business partners to enter into deals that provide more complete access to the world of Playboy … including events, partnership extensions, social media and other digital assets, as well as traditional print advertising.  We believe this could open currently untapped revenue sources and significantly elevate the brand experience that our business partners have when they work with Playboy

The challenge and balance that we will face in the coming months is doing all of this in a way that won’t compromise existing revenue drivers.  We need to stay focused on maintaining revenue while moving the brand forward— so we will be playing two games at the same time—one focused on building toward the brand and company we want to become and the other path focused on maximizing the existing businesses and revenue opportunities.

Finally, I want to thank all of you for your commitment and passion for our brand and our company.  It is an honor to lead this team and I look forward to the journey and success that we are on track to experience together.

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Playboy is pleased to announce the launch of its new iPhone app, Playboy for iPhone.

Playboy for iPhone provides an inclusive look into Playboy’s exclusive world with a curated overview of the Playboy lifestyle for the ultimate urbane guy. The app features cutting-edge content and insight into the coolest places to travel, what clothes to wear, food, cars, girls and beyond. It also features material selectively chosen from the current issue of the magazine.

Go to http://playboymobile.com for more information and to download the app.