Hubbard Radio has been working the credit markets to borrow $420 million which will be used to close its pending $505 million acquisition of 17 radio stations in four markets from Bonneville International. Three levels of financing are involved.
Hubbard Radio is a newly created company owned by the Hubbard family of Minnesota, which has a long history in broadcasting. While the company will continue to be private, the debt offerings have been submitted for ratings by Moody’s Investors Service, so we do know a little about the company’s finances. For example, pro forma for 2010 the station group, including the three radio stations in the Minneapolis-St. Paul market already owned by the Hubbard family, revenues were approximately $170 million. It is unlikely we’ll see any other financial figures in the future, since the debt being raised is all from senior lenders, not any issuance of public bonds.
Moody’s assigned ratings a few notches below investment grade, citing the expected debt-to-EBITDA leverage at closing of 5.6 times. ($420 million divided by 5.6 is $75 million of EBITDA.) It suggested that the ratings could be upgraded if leverage drops below five times.
Hubbard is keeping the key Bonneville managers in place, which got a thumbs-up from Moody’s. The ratings agency also noted that the Hubbard family has a track record of low leverage for its TV businesses, so it is likely it will seek to reduce leverage for the new radio group as well.
Here is what Moody’s had to say in its rating of the $420 million in debt:
“Moody’s Investors Service assigned Hubbard Radio, LLC (“Hubbard”) a B2 Corporate Family Rating (CFR) and a B2 Probability-of-Default Rating (PDR). Additionally, a Ba3 instrument rating was assigned to the company’s proposed $10 million senior secured first lien revolver and $270 million senior secured first lien term loan B, and a Caa1 instrument rating was assigned to its proposed $140 million senior secured second lien term loan C. The new revolver and term loans will be used as part of the financing for the approximately $505 million acquisition of 13 radio stations from Bonneville International Corporation. The rating outlook is stable
..Assignments:
..Issuer — Hubbard Radio, LLC
….Corporate Family Rating — B2
….Probability-of-Default Rating — B2
….Senior Secured Revolver due 2016 — Ba3, LGD 3, 32%
….Senior Secured Term Loan B due 2017 — Ba3, LGD 3, 32%
….Senior Secured Second Lien Term Loan C due 2018 — Caa1, LGD 5, 85%
Outlook is stable
RATINGS RATIONALE
The B2 corporate family rating reflects the company’s high pro forma debt-to-EBITDA leverage at closing (5.6x including Moody’s standard adjustments), the cyclical nature of radio advertising demand, fragmentation of media outlets, as well as the company’s reliance on two markets, Washington DC and Chicago, for a combined two-thirds of total revenue. Moreover, competition may increase pressure on station profitability over time. Ratings are supported by 40% EBITDA margins and a consistent track record for good operating performance under the current station managers. Although revenues and EBITDA are expected to grow in the low to mid-single digit range over the rating horizon, credit metrics including debt-to-EBITDA leverage and interest coverage ratios should improve as free cash flow is applied to reduce term loan balances. The Hubbard family has a track record for maintaining low to moderate leverage for its longstanding television businesses and Moody’s believes management is similarly motivated to reduce debt balances of Hubbard Radio, LLC to gain operational and financial flexibility.
The stable outlook reflects our view that revenue and EBITDA will remain in line with expectations particularly for stations in its Washington D.C. and Chicago markets. The outlook also incorporates our expectation that debt-to-EBITDA leverage will remain below 5.75x (including Moody’s standard adjustments) over the rating horizon with free cash flow-to-debt ratios remaining above 5%.
Ratings could be upgraded if debt-to-EBITDA ratios are sustained below 5x with free cash flow-to-debt ratios remaining above 9%; liquidity would also need to remain good. Ratings could be downgraded if performance in one of Hubbard’s key markets were to deteriorate due to increased competition or if debt financed acquisitions were to result in EBITDA margin erosion or debt-to-EBITDA ratios being sustained above 6x. Deterioration in liquidity could also result in a downgrade.
The principal methodologies used in this rating were Global Broadcast Industry published in June 2008, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.
Hubbard Radio, LLC is a newly formed, family controlled, and privately held media company that will own and operate 14 radio stations in five top 30 markets, including Chicago, Washington D.C., Minneapolis/St. Paul, St. Louis, and Cincinnati. Based in Minneapolis/St. Paul, MN, the company is affiliated with Hubbard Broadcasting Inc., a television and radio broadcasting company that was started in 1923. Pro forma for the transaction, revenues of Hubbard Radio, LLC for the 12 months ended December 2010 totaled approximately $170 million.”
[Editor’s note: Some of the stations are simulcasts, so Moody’s counts only 14.]
RBR-TVBR observation: Pretty impressive ratings for a brand new radio company. Of course, the Hubbard family isn’t new to broadcasting, or even to radio. Its successful track record in television is well known and contributed significantly to the Moody’s analysis.
