Both Fitch Ratings and Moody’s Investors Service have lowered their ratings on Belo Corporation’s public bonds. That follows Belo’s reworking of its bank debt, which, among other things, gave the banks guarantees going forward in return for loosening financial covenants. Fitch, however, upgraded Belo’s bank debt rating because of that.
Fitch downgraded Belo’s Issuer Default Rating (IDR) to BB- from BB and its senior unsecured notes/bonds to B+ from BB. But it upgraded the guaranteed bank facility to BB+ from BB. The rating outlook, however, is negative.
“The downgrade of the IDR and Negative Outlook reflect the continued weak macro-economic environment impacting local media. The upgrade of the bank facility reflects the announced amendment to Belo’s bank credit agreement which provides a guarantee from material domestic subsidiaries. The banks will have guarantees from subsidiaries that in total meet a threshold of 90% of total revenue, asset or EBITDA. The downgrade of the senior unsecured notes/bonds reflects the priority provided by the guarantee to the banks in the event of liquidation or restructuring,” Fitch said. It noted that Belo’s ratings continue to be supported by its strong local presence in top-50 markets and major network affiliations.
Moody’s Investors Service said it downgraded Belo’s Corporate Family Rating (CFR) to Ba3 from Ba2, Probability of Default Rating (PDR) to Ba3 from Ba2, and the senior unsecured note ratings to B1 from Ba2.
“The downgrades reflect Moody’s opinion that Belo remains at risk of violating the debt-to-EBITDA covenant in its credit facility at the end of 2009 based on anticipated advertising revenue declines despite the additional covenant headroom it obtained in the February 26, 2009 amendment and the suspension of the dividend beginning in the third quarter. Moody’s believes Belo’s strong market positions (#1 or #2 in 12 of the 14 markets with a big four network affiliate) and continued positive free cash flow generation enhance Belo’s potential for a covenant amendment relative to more highly levered industry peers. The Ba3 CFR and Moody’s opinion regarding Belo’s prospects for a covenant amendment are nevertheless based on an expectation that cyclical advertising revenue pressure will moderate toward the end of 2009 with moderate growth resuming in 2010 boosted by political advertising including what is likely to be a hotly contested gubernatorial race in Texas,” Moody’s said, adding that the rating outlook is negative.
“The two notch downgrade of the senior unsecured notes to B1 additionally reflects that Belo’s senior unsecured credit facility was granted unconditional and irrevocable joint and several guarantees from operating subsidiaries in conjunction with the amendment. As a result, the $642 million of outstanding bonds are now structurally subordinated to the credit facility with respect to the assets held and cash flow generated by the guarantor subsidiaries. LGD assessments and point estimates were updated to reflect the new credit facility guarantees,” Moody’s said of the impact of the new bank deal.
RBR/TVBR observation: Another trend to watch for this year – banks demanding more security in return for refinancing loans or easing covenants. They sure tightened up on Sumner Redstone, turning the $1.46 billion in unsecured loans at National Amusements Inc. into new loans secured by everything the company owns, including its controlling stakes in CBS and Viacom. You can’t blame the bankers for wanting to make sure that they are positioned to get the biggest piece of the carcass in the event that a borrower defaults. No one really expects that to happen at Belo – but, of course, no one expected the global recession we’re in today either.
