Moody’s gives an upgrade to Local TV’s FoxCo group


Moody'sLocal TV LLC is privately owned so not much is known publicly about its financial performance. However, its two groups of stations have debt rated by Moody’s Investors Service and the credit rating agency recently gave an upgrade to the ratings of FoxCo, the unit of Local TV which bought eight stations from News Corporation’s Fox Television Stations in 2007.

Moody’s upgraded FoxCo Acquisition Sub LLC’s Corporate Family Rating (CFR) and Probability of Default Rating (PDR) each to B2 from B3. Moody’s also upgraded the company’s 13.375% Senior Notes to Caa1, LGD5 – 86% from Caa2, LGD5 – 86%. “The upgrades reflect the company’s improved credit metrics and Moody’s expectations for continued good performance over the rating horizon,” said Moody’s. The $50 Million 1st Lien Senior Secured Revolver and $515 Million 1st Lien Senior Secured Term Loan B were each affirmed at B1. In all, FoxCo has about $659 million of debt rated by Moody’s.

“FoxCo’s B2 corporate family rating reflects moderately high leverage with a two-year average debt-to-EBITDA ratio of 5.7x for December 31, 2011 (including Moody’s standard adjustments). Meaningful leverage reduction compared to the 7.3x two year average debt-to-EBITDA ratio reported for 2010 was achieved through improved operating performance over the last two years in addition to debt prepayments. As expected, FoxCo grew EBITDA for FYE 2011 to more than $110 million (including Moody’s standard adjustments) meaningfully higher than EBITDA of $72 million reported in FY2009, reflecting an improving economy and a recovery in advertising demand, especially for auto and retail sectors,” said the ratings rationale from Moody’s.

“The company prepaid $25 million of term loan balances in 2011, and we note that revenues of $333 million for FY2011 matched revenues for FY2010 despite the absence of significant political ad sales. With a focus on local markets, management was able to offset the expected loss of political revenues in FY2011 by growing core ad revenues and negotiating higher retransmission fees,” said Carl Salas, Moody’s Vice President and Senior Analyst.

Looking forward, Moody’s said it expects the company to generate at least high single digit revenue growth in 2012 given strong demand for political advertising. Beyond 2012, FoxCo will benefit from expected increases in retransmission revenues and related cash flow helping to offset the absence of political revenues in 2013, the ratings agency added.

“Moody’s believes the company needs to continue reducing debt balances given expected revenue declines in non-election years and vulnerability to economic cycles. Lack of national scale and a station portfolio with mostly Fox affiliates constrain ratings. As a television broadcaster, FoxCo faces increased competition for advertising dollars due to ongoing media fragmentation. Ratings are supported by good EBITDA margins enhanced by cost savings from its operating agreement with Local TV and its management contract with Tribune Company. Cash balances of a minimum $10 million over the rating horizon plus $50 million of availability under its revolver facility provide good liquidity,” explained Moody’s.

The ratings agency said the stable outlook reflects Moody’s view that FoxCo will grow core advertising revenues and apply excess cash to reduce debt balances resulting in two year debt-to-EBITDA ratios remaining below current levels. The outlook also incorporates Moody’s expectations that the company will maintain good liquidity and generate mid to high single-digit free cash flow-to-debt ratios.

“Ownership by a financial sponsor constrains ratings; however, ratings could be upgraded if revenue growth and debt repayments result in trailing two-year debt-to-EBITDA ratios remaining below 4.75x and management provides assurances that they would operate the company consistent with the higher rating. FoxCo would also need to maintain good liquidity including expectations for high single-digit free cash flow-to-debt ratios. Ratings could be downgraded if the company is not able to grow core revenues due to weak ad demand in key markets, reflecting economic weakness or lack of competitive Fox programming, and resulting in two-year debt-to-EBITDA ratios (including Moody’s standard adjustments) increasing above 6.0x. Weakened liquidity, including low single-digit free cash flow, or reduced EBITDA cushion to the covenants, could also lead to a downgrade,” said the analysis.

Moody’s provided this background on the company: Formed in July 2008 through the acquisition of eight stations from Fox Television Stations, Inc., FoxCo Acquisition Sub LLC owns or operates 10 stations in DMAs that rank from 17 to 57, including seven owned Fox affiliates and one owned CBS affiliate, plus two stations operated under Local Marketing Agreements with Tribune Broadcasting. Local TV Holdings, LLC, which is 95% owned by affiliates of Oak Hill Capital Partners, serves as FoxCo’s parent company. The Company maintains headquarters in Fort Wright, Kentucky and revenue for the twelve months ended December 31, 2011, totaled $333 million.

Moody’s Upgrades:

..Issuer: FoxCo Acquisition Sub, LLC

….Corporate Family Rating: Upgraded to B2 from B3

….Probability of Default Rating: Upgraded to B2 from B3

.13.375% Senior Notes due July 15, 2016 ($200 million outstanding): Upgraded to Caa1, LGD5 – 86% from Caa2, LGD5 – 86%


..Issuer: FoxCo Acquisition Sub, LLC

.$50 Million 1st Lien Senior Secured Revolver due July 2014: Affirmed B1 (LGD point estimates updated to LGD3 – 33% from LGD3 – 32%)

.$515 Million 1st Lien Senior Secured Term Loan B due July 2015 ($409 million outstanding): Affirmed B1, LGD (point estimates updated to LGD3 – 33% from LGD3 – 32%)

Outlook Action:

..Issuer: FoxCo Acquisition Sub, LLC

……Outlook, Changed to Stable from Positive