Both the company’s Corporate Family Rating (CFR) and Probability of Default Rating (PDR) have been upgraded to B3 from Caa1.
As for the offer itself, Moody’s said it was being rated “…Caa2, LGD5 — 87% rating to the proposed $250 million senior unsecured notes used to tender a portion of the existing 10.5% second lien notes.”
Moody’s explained its rationale, stating, “Although leverage remains high, the upgrade of the CFR was driven by improving debt-to-EBITDA ratios and the proposed refinancing which will extend at least a portion of 2014-2015 maturities and reduce annual interest expense. Gray continues to benefit from strong demand for political advertising during election years, most recently resulting in markedly higher EBITDA growth for the remainder of 2012 and 2-year average debt-to-EBITDA ratios estimated at 6.8x – 6.9x for FYE2012 compared to 7.6x at the end of 2011. Moody’s expects leverage to improve to less than 6.5x over the next 12 to 18 months with 2-year average free cash flow-to-debt ratios of at least 3% – 4%.”
Moody’s added, “The stable outlook incorporates our expectation that Gray will generate strong political revenue through the first half of November and that EBITDA for 2012 will increase at least 40% above 2011 levels resulting in 2-year average debt-to-EBITDA leverage of 6.9x or less (including Moody’s standard adjustments) with further improvement over the rating horizon from expected stable demand for core, non-political advertising. The outlook incorporates Moody’s view that the company will maintain good liquidity with the majority of free cash flow being applied to reduce debt balances. To the extent performance tracks management’s plan through the end of 2013, the outlook includes the potential for dividends to be reinstated and funded from a portion of free cash flow.”
If election income results, Moody’s said a downgrade was well within the realm of possibilities.