Moody's applauds Sinclair deal to buy Freedom stations


Sinclair Broadcast Group is taking on some more debt to buy the Freedom Communications TV group for $385 million, but Moody’s Investors Service is calling that pending deal and another to buy the Four Points Media group for $200 million “credit positive” for Sinclair.

Analysts at Moody’s figure the Freedom deal reflects an approximate 9x EBITDA multiple (trailing 2010-2011) for Freedom and a 6.6x forward EBITDA multiple (2012-2013) for Sinclair. Freedom’s eight television stations consist of five CBS affiliates, two ABC, and one CW in DMA’s ranked #38 to #141, the ratings agency noted, with closing expected in the first half of 2010. “Management indicated that funding for this transaction would come from the issuance of new secured debt or notes,” said the ratings statement.

“Earlier this year on September 8, 2011, the company entered into an agreement to purchase the assets of Four Points Media from affiliates of Cerberus Capital Management, L.P. for approximately $200 million or an estimated 6.5x forward EBITDA for Sinclair. Four Points Media owns and operates seven stations in four markets. The transaction is subject to FCC approval and is anticipated to close in the first quarter of 2012,” Moody’s said of the earlier deal.

“Moody’s views the proposed acquisitions as credit positive, despite the temporary increase in leverage, given the added station diversification as well as the continuing addition of non-Fox affiliates to the company’s portfolio of stations. Debt-to-EBITDA ratios are expected to increase by 0.5x turns for both transactions partially reflecting Sinclair’s ability to eliminate redundant costs. At June 30, 2011, the company’s debt-to-EBITDA ratio was approximately 5.0x on a trailing 8 quarter basis (including Moody’s standard adjustments and prior to announced acquisitions, or 4.3x on a trailing 4 quarter basis). Furthermore, the ability to operate a duopoly in West Palm Beach as a result of the Freedom transaction provides incremental benefits,” stated Carl Salas, a senior analyst at Moody’s.

“Looking forward, the company has the ability to issue some incremental first lien debt as part of the new financing without triggering a one notch instrument downgrade on Sinclair’s B1 rated 2nd lien notes. Final instrument notching depends on the final mix of secured debt and unsecured notes that are raised,” Moody’s said in its ratings statement.