Moody’s feels broadcasters’ pain


Or at least the credit rating agency is measuring the pain. So far in 2009, Moody’s Investors Service says the adverse impact of the contracting US economy on radio and television station revenues is at the high end of its forecast range – and that ain’t good.

Here is the dismal analysis from Moody’s:

“Moody’s Investors Service stated that the contracting U.S. economy’s adverse impact on Television and Radio Broadcast station radio revenues is at the high end of its forecasted
range so far in 2009, and that additional rating downgrades are likely.

On October 2, 2008, Moody’s forecasted that broadcasters faced a 15 to 20% average year over year decline in 2009 verses 2008. The rating agency used the lower end of that range spread evenly through the year as its initial assumptions in forecasting each company’s revenue, which led to downgrades and negative rating outlooks for about 28 companies. At that time, Moody’s also noted that there was a high likelihood of ratings volatility for broadcasters. The 2009 revenue decline pattern could be uneven, with the largest percent declines, potentially in excess of 20%, occurring in the first half of the year, which could mean that ratings would need to be adjusted down even further. In fact, some broadcasters have paced at and above 25% revenue declines in January, particularly those with stations located in the country’s weakest economic metro areas where unemployment and home foreclosures are highest.

The early 2009 pattern heightens the risk that broadcasters will breach bank credit agreement financial covenants as early as Q1 and Q2 of 2009, and some may run out of liquidity earlier than originally expected. Absent a rebound in advertising revenues in coming fiscal quarters which appears less likely, the more serious revenue declines will likely result in EBITDA contraction of as much as 35 to 40% and will increase leverage well into double digit levels, as it will become increasingly difficult for companies to offset the extreme weakness in the later part of the year. Therefore, covenant defaults will most certainly increase in probability and frequency. Some companies with very high debt leverage may successfully receive amendments and waivers of covenant breaches, which will likely give those companies only little headroom and temporarily forestall a default with the hope of an economic rebound. The cost to the broadcaster may be a hike in interest rates which will reduce what little cash flow remains. Others with little or no free cash flow and liquidity may opt or be forced to restructure their debt under bankruptcy protection.

Moody’s is conducting a second comprehensive examination of U.S. broadcasters and anticipates a continuation of negative rating actions in the sector. Moody’s expects rated issuers will face significant revenue and cash flow deterioration this year due to a deepening contraction in the U.S. economy and its catastrophic impact on advertising revenue and cash flows.”

RBR/TVBR observation: Moody’s has already downgraded or issued negative rating outlooks for 28 radio and TV companies in recent months. And with the ratings company now beginning to worry that the high end of its revenue decline projection range – 20% – may not be high enough, more of those downgrades and negative warnings are likely. That will have the snowball effect of making credit even more expensive for broadcasters to obtain – and availability and even more difficult proposition.