Moody’s downgrades LIN, and isn’t yet finished


LIN TV is the latest broadcaster to have its credit ratings reduced by Moody’s Investors Service. The downgrade affects approximately $1.1 billion in debt. Ominously, Moody’s says LIN’s ratings remain under review for further possible downgrade.

Here is the bad news from the ratings agency:

“Moody’s Investors Service downgraded LIN Television Corporation’s ("LIN") Corporate Family Rating and Probability of Default Rating to B1 from Ba3. Moody’s also lowered the company’s senior secured credit facility ratings to Ba1 from Baa3 and its senior subordinated notes to B2 from B1. Finally, LIN’s speculative grade  liquidity rating was downgraded to SGL-4 from SGL-2. Ratings remain under  review for further possible downgrade.

The rating downgrades and review for further possible downgrade reflect LIN’s weaker than expected non-political advertising revenue in Q3 2008, the company’s guidance for significantly weaker local and national advertising revenue during Q4 2008 and Moody’s concerns that the company will continue to face substantial revenue and cash flow deterioration in 2009 due to the high probability of further weakening in the U.S. economy and its impact on advertising revenue. The depth and the severity of the expected decline exceeds the cyclicality built into the former Ba3 CFR and Moody’s expects that the revenue decline will likely pressure LIN’s ability to maintain average leverage of under 6.5x over political and non-political years.

More significantly, the company’s revised SGL-4 liquidity rating reflects Moody’s concerns that the expected revenue and cash flow deterioration creates uncertainty regarding LIN’s ability to remain in compliance with the financial maintenance covenants under its credit facility. Any potential requisite waiver/amendment would also likely result in increased pricing, thereby creating additional stress on the company’s cash flow. Uncertainty with respect to LIN TV Corp.’s (LIN’s parent company) joint venture with NBC Universal, in terms of both similar operational underperformance and the guarantee of all venture-related debt by LIN notwithstanding its 20% ownership stake, is also cause for concern and could contribute to further erosion of credit quality as default risk is elevated.

In concluding the review, Moody’s will assess LIN’s revenue and cash flow prospects (including the impact of the company’s strategic business review on its cost structure and the associated restructuring charge), its access to liquidity and expected credit metrics. Additionally, Moody’s will evaluate the operating performance and liquidity of the LIN TV Corp. joint venture, the likelihood of cash calls on LIN TV Corp., the probability of default on the $815 million of joint venture debt (which is guaranteed by LIN TV Corp) and of LIN TV Corp’s guarantee being called upon due to insufficiency of the value of the joint venture assets to cover its debt, and the potential impact thereof on LIN’s credit profile.

Moody’s has taken the following rating actions:

Issuer: LIN Television Corporation

Corporate Family Rating — downgraded to B1 from Ba3, RUR

Probability of Default Rating — downgraded to B1 from Ba3, RUR

Secured Revolver — downgraded to Ba1 from Baa3 (LGD 2, 12%), RUR

Secured Term Loan — downgraded to Ba1 from Baa3 (LGD 2, 12%), RUR

6.5% Senior Subordinated Notes due 2013 — downgraded to B2 from B1 (to LGD 4, 69% from LGD 4, 68%), RUR

6.5% Senior Subordinated Notes CL B due 2013 — downgraded to B2 from B1 (to LGD 4, 69% from LGD 4, 68%), RUR

Speculative Grade Liquidity Rating — downgraded to SGL-4 from SGL-2

Outlook — Under Review for further possible downgrade.

LIN TV Corp., headquartered in Providence, Rhode Island, owns and operates and/or programs 29 television stations, including two stations pursuant to local marketing agreements, in 17 mid-sized markets in the United States. In addition, the company owns 20% of KXAS-TV in Dallas, Texas and KNSD-TV in San Diego, California, through a joint venture with NBC."