Moody's cuts Media General
With Media General taking on debt to buy four stations from NBC for 603 million (4/7/06 TVBR #69), Moody's has lowered the company's ratings a notch. The move puts Media General's publicly traded bonds into junk bond territory, dropping from the lowest investment grade, Baa3, to Ba1. That is significant because some pension funds and such are not allowed to own bonds below investment grade.
"The downgrade reflects the significant increase in Media General's debt-to-EBITDA leverage (to 5.1x LTM March 26, 2006 pro forma including Moody's standard adjustments for pensions, operating leases and other items as well as the effect of the proposed divestitures) that will occur as a result of the acquisition, which Moody's believes has a high probability of closing. The increase in financial risk is occurring at a time when the company's sizable 2006 and 2007 capital expenditure program will limit the company's ability to reduce its high leverage in those years. Moody's expects heightened competition for advertising revenues and pressure on media industry equity valuations will prompt the company to continue to seek acquisitions over the intermediate term to increase scale and supplement growth at its mature newspaper and broadcast properties. Moody's believes these pressures and the company's willingness to fund acquisitions with a high debt component will sustain a level and volatility in leverage consistent with the speculative-grade rating," the ratings agency said. Moody's said its outlook for Media General is "stable," reflecting its expectation "that the company will reduce debt-to-EBITDA to a level below 4.0x by 2008 supported by the addition of the four NBC broadcast properties with good collective operating margins, incremental sales from new product development and enhanced printing capabilities, good business line diversity (58% revenues from newspapers and 39% from broadcast), and improved cash generation available for debt service once capital expenditures begin to moderate after 2007."
Here are the ratings changes.
Downgrades:
Issuer: Media General, Inc.
Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 from Baa3
Senior Unsecured Shelf, Downgraded to (P)Ba1 from (P)Baa3
Preferred Stock Shelf, Downgraded to (P)Ba3 from (P)Ba2
Assignments:
Issuer: Media General, Inc.
Corporate Family Rating, Assigned Ba1
Outlook Actions:
Issuer: Media General, Inc.
Outlook, Changed To Stable From Rating Under Review
TVBR observation:
Not mentioned by Moody's was the other part of Media General's April announcement - that it would be selling four smaller market stations in addition to buying four from NBC. Certainly those sales, with buyers yet to be named, won't amount to 600 million, but they will bring in cash that will quickly improve the leverage picture for the company.
