Sinclair has already made two television group purchases, and 2013 is still young. What’s more, Moody’s Investors Service believes it isn’t done buying just yet – but it’s doing so without doing serious damage to its leverage level and has retained its stable rating.
Moody’s says that Sinclairs leverage of about 5.3x is likely to rise, due both to its acquisitions ($99M for Cox stations and $370M for Barrington stations) and the lack of political income this year.
Revenues, in fact, are expected to decline by 4%-6%. However, Moody’s expects maintenance of healthy 35%+ EBITDA margins, “…generated by the company’s sizable and diverse television station group with a focus on operating multiple primary television stations in a market using duopolies and Local Marketing Agreements.”
Moody’s believes that Sinclair is still on the acquisition path, but that it will do so while remaining below the 5.5x leverage level.
The final assessment: “The stable outlook reflects Moody’s expectation that core revenues will grow in the low single digit percentage range over the next 12 months with additional increases in retransmission fees (increasingly offset by higher levels of production expense, including reverse compensation), but the lack of significant political ad demand in 2013 will result in overall revenue declines. In the absence of additional acquisitions, we believe Sinclair would apply free cash flow to reduce debt balances in excess of required term loan amortization contributing to improved leverage and greater free cash flow.”
Watch out, though, if leverage sneaks above the 5.5x level.
RBR-TVBR observation: The evolution of the station trading market seems finally to have taken place. Prices were highly inflated, particularly on the radio side, in the aftermath of the 1996 Telecom Act as companies raced to consolidate, and prices inflated wildly.
The bottom fell out just about the time the dot-com bubble burst, and a series of adverse events prevented a bounceback. However, after years of sluggish trading, it would appear that asking prices are finally coming down to earth, while enough companies are now healthy enough to sits on the buyer’s side of the M&A table.
There is also a consolidation effect taking place on the TV side, as JSAs and SSAs have allowed de facto duopolies in markets where it is still not possible to own more than one station outright.
The upshot is that the television side is where the vast bulk of the trading value has resided thus far in 2013, and that is a trend likely to continue.
