Analyst sees signs of distress at Liberman


LBI / Liberman Broadcasting, Inc.Moody’s Investors Service notes that financial maneuvers by Liberman Broadcasting at the end of 2012 amount to a limited default, and says that a very high level of leverage limits liquidity and poses challenges for the company this year.

Moody’s has assigned LBI a Corporate Family Rating of Caa2, which didn’t change as a result of the latest moves, but various LBI notes were downgraded and the overall outlook for the company is negative.

According to Moody’s, 53% of the company’s income is derived from its 10 television stations and its Estrella Network, and the remaining 47% comes from its 19 radio stations.

“The Caa2 corporate family rating reflects very high leverage with more than 14x debt-to-EBITDA estimated for December 31, 2012 despite the roughly $70 million reduction in funded debt balances from the distressed exchange,”explained Moody’s. “Ratings also reflect Moody’s view that liquidity remains weak given only partial availability under the $50 million revolver and very tight EBITDA coverage of interest expense and capex. The new notes allow the company to PIK a portion of debt service; however, we expect EBITDA coverage of interest expense to be approximately 1.0x over the next 12 months. In addition, $11 million of the remaining 11% sr discount notes mature in October 2013 putting additional pressure on liquidity absent completion of pending asset sales.”

The asset sales in question include the $6M sale of KTCY-FM Fort Worth, expected to close this quarter; and the $13.6M sale of Los Angeles real estate, expected to close in Q2.

Moody’s notes that one of the significant problems caused by LBI’s leverage issues are the inability to invest in restoring health to its radio division and to capitalize on opportunities on the TV side.

In the end, even a good revenue year will be unlikely to reduce leverage any lower than 12%, and on top of that a senior discount note maturing in October could add further stress. The result is the overall negative outlook.