As a private company not much is disclosed publicly about the finances of Cox Enterprises. But the radio, TV, cable, newspaper, auto auction and ranch company does have about $3 billion of debt rated by Moody’s Investors Service – not a big load for a company with $14.7 billion in annual revenues – and Moody’s recently gave it an upgrade.
Here’s what Moody’s had to say in its analysis:
Moody’s Investors Service upgraded Cox Enterprises, Inc.’s (“Cox”) senior unsecured ratings to Baa2 from Baa3, and its short term ratings to P-2 from P-3. CEI’s businesses which service its debt on a first priority basis include auto auctions and services (Manheim) and advertising based businesses such as newspapers, TV stations, radio stations, direct mail advertising, and TV sales
representation (collectively called the Cox Media Group). Its subordinated priority businesses, which are also private companies, include its separately rated cable systems subsidiary, 100% owned Cox Communications, Inc. (CCI – Baa2 senior unsecured, Prime-2 commercial paper-stable outlook) and its 68% owned AutoTrader.com subsidiary (AT.com – Ba3 Corporate Family Rating-stable outlook). This action concludes the review for possible upgrade initiated on February 11, 2011. The ratings outlook is stable.
The upgrade reflects the improving operating trends at the company’s primary recourse businesses, material debt reduction over the last few years, and our expectation that the company will continue to de-lever over the next 18 months through EBITDA growth. While Cox’s Manheim continues to experience the delayed impact of the recession driven decline in new car sales on its current volume of used car auction sales, the business has recently seen an improvement in volumes particularly driven by increased dealer vehicles sold and we expect will continue to recover in the near-term. As the company restructure’s Manheim, we expect expenses to reduce significantly and contribute to double digit EBITDA growth in the next twelve to eighteen months. Cox’s Media group saw a healthy rebound in 2010, with strong growth in its television broadcasting business more than offsetting the secular declines experienced by its newspaper businesses, which also experienced a lower rate of declines as the economy recovers. While the segment will likely be impacted by reduced off-cycle political advertising in 2011, we
believe its underlying growth trends remain solid, and expect strength in political ad sales for the coming year to contribute to double digit EBITDA growth in 2012.
The upgrade also reflects the company’s financial flexibility and commitment to managing leverage, demonstrated by the continued up-streaming of cash from CCI, its 100% owned cable systems subsidiary and largest business, which it applied to pay down debt and maintain liquidity during the cyclical downturn when its primary recourse businesses were more severely impacted. Cox’s restricted group debt-to-EBITDA at the end of the first quarter was about 4.0x (incorporating Moody’s adjustments), and we expect leverage to decline and be sustained within the 3.0x-3.5x range in the near term and to decline to under 3.0x over the intermediate-term. Although Cox’s standalone leverage is relatively weaker than some of its peers in its ratings category, it is supported by the considerable equity value of its CCI and AutoTrader.com (“AT.com”) subsidiaries, which far exceed the debt outstanding at CEI.
Summary of rating actions:
…Senior Unsecured Bank Facility, to Baa2 from Baa3
…Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa3
…Commercial Paper, to P-2 from P-3