MGI/LIN deal modifications are credit-neutral


Media GeneralThe merger of LIN Media into Media General suffered a minor upheaval when LIN’s WISH Indianapolis lost its CBS affiliation. But as far as the overall health of the two companies is concerned, Moody’s Investors Service says no worries.

The minuses involved are a reduction in per-share compensation for LIN shareholders from $27.82 to $25.97, which Moody’s says is a reflection of a $110M decrease in total merger consideration. It will also increase the total ownership of current MGI shareholders from 64% to 67% and decrease LIN shareholders interest from 36% to 33%.

Moody’s Carl Salas explained, “Management expects the transactions to result in an estimated $16 million net reduction of 2013/2014 average broadcast cash flow, but generate $140 million – $160 million in net proceeds available to reduce debt balances. In aggregate, the loss of the CBS affiliation in Indianapolis and likely reduction in cash flow, the amended merger agreement, as well as proposed divestitures and acquisitions will have no immediate impact on the credit ratings of Media General or LIN as credit metrics are expected to change only modestly given $140 million – $160 million of debt repayment. Post merger and announced transactions, Media General’s 2-year average debt-to-EBITDA is expected to be in the mid 5x range (including Moody’s standard adjustments) estimated for FYE2014 with at least mid-single digit percentage 2-year average free cash flow-to-debt despite Moody’s expectations for higher reverse compensation paid to networks as affiliate agreements are renewed.”

In conclusion, Moody’s says that, “Agreements by Media General and LIN Media to amend merger terms and divest stations in five markets have no immediate impact on credit ratings.”