Moody’s Investors Service downgraded Media General’s credit ratings. “The rating actions reflect the liquidity pressure from the approaching March 2013 credit facility maturity and heightened risk of a covenant violation, as well as the operating pressure from a weaker advertising market,” Moody’s said, adding that its rating outlook for Media General remains negative.
Moody’s lowered Media General’s Corporate Family Rating (CFR) and senior secured bond rating to B3 from B2, and lowered the company’s speculative-grade liquidity rating to SGL-4 from SGL-3.
“Media General does not generate sufficient free cash flow to meet the March 2013 maturity and is thus dependant on credit market access to refinance the loans. Moody’s believes tighter credit market conditions, Media General’s debt structure, and an expected softening of the advertising market based on downward revisions to economic growth will create challenges to completing a refinancing,” the ratings agency said. “The B3 CFR is based on Moody’s expectation that Media General can address its liquidity issues, but that the increased interest cost will weaken the company’s free cash flow generation and ability to reduce debt and its high leverage.”
Moody’s is projecting that Media General’s EBITDA will decline by approximately 25% in 2011 and rebound by 25-35% in 2012 based on the odd/even year political spending cycle and ongoing declines in newspaper revenue. Moody’s said it is assuming that Medial General will aggressively manage its cost structure and seek to further reduce costs in response to any incremental revenue weakness.
“Moody’s believes based on the EBITDA forecasts that Media General will generate free cash flow that is minimal in 2011 and approximately $20-30 million in 2012 before factoring in the cost of a refinancing. This provides limited flexibility to absorb higher interest costs that are likely to result from a refinancing notwithstanding the approximate $10 million annual benefit the company will reap from the expiration of its interest rate swap in August 2011,” the ratings analysis stated.
“Moody’s continues to believe Media General’s flexibility is hampered by its debt structure and prior actions to manage through the 2008-2009 recession. The company eliminated its dividend, provided security and guarantees to its bank lenders to obtain covenant amendments, and issued a secured bond in February 2010 to help reduce borrowings under and extend the term of its prior credit facility. Because Media General’s entire debt structure is secured with pari passu liens, Moody’s believes future refinancing options are also complicated by a limited ability to offer prospective lenders a senior position to the bonds as an inducement to complete a transaction. In addition, the appetite for an unsecured transaction is likely to be low and the existing secured notes are not callable until February 2014 (except via an unattractive make-whole premium),” the statement said.
Downgrades:
..Issuer: Media General, Inc.
….Corporate Family Rating, Downgraded to B3 from B2
….Probability of Default Rating, Downgraded to B3 from B2
….Senior Secured Regular Bond/Debenture, Downgraded to B3, LGD3 – 44% from B2, LGD3 – 44%
….Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3
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