Analysts agree: Gray hits it out of the park with Hoak


Gray TelevisionBoth Moody’s Investors Service and Wells Fargo have taken a look at the $342.5M deal sending stations from Hoak and partners to Gray Television and Excalibur Broadcasting, and they like what they see.

Well Fargo’s Marci Ryvicker spelled out what is coming: “The stations include 4 ABC affiliates, 8 NBC affiliates, 2 CBS affiliates and 3 FOX affiliates in markets ranging in size from DMA No. 100 to DMA No. 208.” Two of the stations, one in Grand Junction CO and another in Panama City FL, will be spun off.

Ryvicker commented, “Today’s announcement was a nice positive surprise – we were not certain whether or not [Gray] would be able to ”win” the Hoak assets from other more aggressive buyers (particularly [Nexstar]). While the multiple might be slightly higher than some of the other private company deals, we are not surprised here given the affiliate mix as well as the fact that the Hoak deal was likely one of the more aggressive auctions. We view this announcement as a positive and potentially transformative deal for [Gray].”

Carl Salas at Moody’s said the deal will cause no changes at all to the Gray’s B3 Corporate Family Rating and added that its outlook remains positive.

“This latest transaction includes the fourth planned acquisition announced by Gray in November 2013 and brings the aggregate purchase amount to $371 million. Gray expects to fund the transactions with additional debt facilities and some cash resulting in pro forma 2-year average debt-to-EBITDA ratios of roughly 6.3x at FYE2013 (including Moody’s standard adjustments),” noted Salas.

He concluded, “The positive rating outlook reflects Moody’s view that management will achieve most of its targeted $5 million of synergies, of which 40% or more come from elimination of redundant expenses including corporate overhead. Revenues will receive a boost from political ad demand particularly in the second half of 2014, resulting in improved leverage and coverage ratios compared to pre-transaction levels, including 2-year average debt-to-EBITDA below 6.0x in the absence of additional acquisitions. Ratings reflect moderately high financial risk, the inherent cyclicality of the broadcast television business, and increasing media fragmentation. Gray anticipates closing the transactions in the first half of 2014, subject to FCC approval, anti-trust clearance and other customary closing conditions.”