After putting five television broadcasters up for credit rating reviews this month, Moody’s Investors Service has now downgraded another TV group owner that wasn’t even on that list – Barrington Broadcasting. Moody’s cites increasing pressure on television advertising revenues due to the slowdown in consumer spending. The credit rating agency also says its outlook for Barrington is negative.
Moody’s downgraded Gray Television last week and is still evaluating four other TV group owners: Local TV Finance LLC, the related FoxCo Acquisition Sub LLC which recently bought eight stations from News Corp., Newport Television Holdings LLC and NV Broadcasting LLC (New Vision).
Here is the bad news from Moody’s for Barrington:
“Moody’s Investors Service lowered the corporate family and probability of default ratings for Barrington Broadcasting Group LLC (Barrington) to Caa1 from B2 and instrument ratings as shown. Moody’s expects television broadcasting revenue (which consists almost entirely of advertising) to come under increasing pressure due to the slowdown in consumer spending, its impact on corporate profits and the resulting cutbacks in advertising and marketing budgets. The depth and severity of the estimated decline exceeds the cyclicality built into the prior B2 corporate family rating. These conditions will likely challenge Barrington’s ability to generate positive free cash flow in 2009, particularly given its presence in weaker markets such as Flint, Michigan; Toledo, Ohio; and Syracuse, New York, in Moody’s view.
The Caa1 corporate family rating is more appropriate for these expectations, and the Caa1 probability of default rating better reflects Moody’s concerns over a potential covenant breach. In May, Moody’s lowered Barrington’s Speculative Grade Liquidity rating to SGL-4 from SGL-2, incorporating the potential for a covenant breach when the leverage covenant in the company’s credit agreement tightens in the fourth quarter of 2008. Moody’s affirmed the SGL-4 rating and estimates the company will face challenges in complying but continues to consider a cure reasonably likely. The credit agreement provides for an equity cure, and the equity sponsor could also reduce debt through conversion of its subordinated note related to the Tucker acquisition.
The outlook is negative, primarily reflecting the uncertainty over the covenants. A summary of today’s rating actions follows.
Barrington Broadcasting Group LLC
….Corporate Family Rating, Downgraded to Caa1 from B2
….Probability of Default Rating, Downgraded to Caa1 from B2
….Senior Subordinated Bonds, Downgraded to Caa3, LGD5, 81% from Caa1
….Senior Secured Bank Credit Facility, Downgraded to B2, LGD2, 26% from Ba3
….Affirmed SGL-4 Speculative Grade Liquidity Rating
….Outlook, Changed To Negative From Stable
Barrington’s Caa1 corporate family rating reflects high leverage, expectations for negative free cash flow in 2009, and modest margins relative to its television broadcast peers. The rating also incorporates lack of scale, the inherent cyclicality of advertising spending, and long term secular pressure as the proliferation of new media fragments audiences and these non-traditional media compete for advertising dollars. Barrington’s continued focus on less economically sensitive local advertising revenue and its diversity in terms of both network affiliations and geography support the rating. However, the benefits of this diversity diminish somewhat given the current broad based economic challenges.
In May 2008, Moody’s lowered the corporate family and probability of default ratings for Barrington to B2 from B1, reflecting weaker than expected performance.
Barrington Broadcasting Group, LLC, headquartered in Hoffman Estates, Illinois, owns or programs 23 network television stations in 15 markets.”