The credit rating agency notes that the company has not yet announced a sale of KRON-TV San Francisco, which has been on the market since January 2008. With station values down, Moody’s Investors Service questions whether Young’s asset value would cover its debt in a distress scenario.
The ratings agency lowered its ratings on Young’s various levels of debt and also downgraded its probability of default rating.
“The downgrades reflect Young’s continuing cash burn which contributes to an eroding liquidity profile. The company’s operating performance continues to be weak and has been adversely affected by the soft economy and the related pullback in advertising. Moody’s believes that the fundamental credit profile of the company as projected continues to look weak and that the company will need to execute on cost reductions and/or revenue enhancements and take additional steps to reduce leverage,” Moody’s said.
“The negative outlook reflects Moody’s concerns over the company’s liquidity and ability to maintain the minimum cash balances in 2009 as required under the secured credit facility agreement, especially in light of the uncertainty regarding the occurrence and timing of the sale of KRON and the ongoing cash burn after debt service costs,” the ratings agency told clients.
By lowering the probability of default rating, Moody’s noted an “elevated” risk of default. “Moody’s believes that there is significant value in Young’s television station assets, however, our expectations are tempered by the current financing environment and asset valuations, uncertainty surrounding the sale of KRON and the writedown in KRON’s asset value. Additionally, Moody’s continues to believe that Young’s asset value will likely not adequately cover the company’s debt obligations in a distress scenario, and that junior-ranking bondholders in particular are exposed to potentially material loss absorption in an event of default,” the ratings update stated.
On the positive side, Moody’s noted that “the ratings benefit from the higher proportion of comparatively stable local advertising revenue (approximately 68% of gross revenue during the second quarter ended 6/30/2008), strong positions in several markets and the company’s presence (through KRON) in the sixth largest DMA.”
Moody’s took the following ratings actions:
Young Broadcasting Inc.
Corporate family rating – downgraded to Caa3 from Caa1
Probability-of-default rating – downgraded to Caa3 from Caa2
$370 million senior secured credit facility — downgraded to B2 (LGD 2, 13%) from B1 (LGD 1, 7%)
10% Senior Subordinated Notes due 2011 — downgraded to Ca (LGD 4, 68%) from Caa2 (LGD 4, 54%)
8 3/4 % Senior Subordinated Notes due 2014 — downgraded to Ca (LGD 4, 68%) from Caa2 (LGD 4, 54%)
The outlook is negative.
RBR/TVBR observation: Certainly station values are not what they were when Young Broadcasting began shopping its biggest station last year to improve its balance sheet. But after seeing NBC Universal agree to sell WTVJ-TV Miami to Post-Newsweek Stations for only $205 million, we have to wonder what price tag KRON can command.