Moody’s slates five TV companies for possible downgrades

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Warning that the television broadcasting sector may face substantial revenue and cash flow drops, Moody’s Investors Service has put five TV group owners on review for potential credit rating downgrades. The companies on the Moody’s hot seat are Gray Television, the FoxCo Acquisition Sub LLC which recently bought eight stations from News Corp., Local TV Finance LLC, Newport Television Holdings LLC and NV Broadcasting LLC (New Vision).


Local TV and FoxCo Acquisition are related companies, both headed by CEO Bobby Lawrence, but have separate debt structures. Gray is the only one of the group with public stock.

Here’s what Moody’s had to say on Friday:

“Today’s rating actions are prompted by our heightened concerns that the television broadcasting sector will face substantial revenue and cash flow deterioration due to the high probability of further deterioration in the U.S. economy and its impact on advertising revenue.

Television broadcasters derive a majority of their revenue from cyclical advertising. Annual television station revenue performance is additionally affected by the timing of the Olympics and elections. TV broadcast station revenues will be lower in 2009 due to the absence of these latter events. Additionally, Moody’s expects television broadcasting revenue to continue to come under increasing cyclical pressure due to depressed consumer confidence, the slowdown in consumer spending, its impact on corporate profits and the resulting cutbacks in advertising and marketing budgets by several industries. In addition, Moody’s notes that the primarily fixed cost base of most television broadcasting companies offers limited avenues to reduce costs in a downturn. As a result, the operating cash flow and the fundamental credit profiles of television broadcasters could weaken dramatically in the face of a weak economic and advertising climate.

Moody’s expects the deteriorating cash flows and high debt leverage to erode headroom under financial maintenance covenants, which in some cases could cause severe liquidity pressure. While the sale of assets can provide broadcasters with additional liquidity, in our view, a sale of stations may be difficult and may take longer due to the current adverse credit environment and lack of financing availability. Reduced access to capital markets will also make it challenging for companies to refinance debt, raise additional funding and remedy covenant (actual or potential) problems.

Moody’s has placed the following ratings under review for possible downgrade:

Issuer – Gray Television, Inc.

Corporate family rating — B2

Probability-of-default rating — B3

$100 million revolving credit facility — B2 (LGD 3, 35%)

$925 million term loan facility — B2 (LGD 3, 35%)

Outlook revised to under review for possible downgrade from negative.

Gray Television, Inc., headquartered in Atlanta, Georgia, is a television broadcaster that owns 36 primary television stations serving 30 mid-sized markets. The company’s total revenues were approximately $307 million for year ended December 31, 2007.

Issuer – FoxCo Acquisition Sub L.L.C.

Corporate family rating — B2

Probability-of-default rating — B2

$50 million Senior Secured Revolving Credit Facility — B1 (LGD 3, 32%)

$515 million Senior Secured Term Loan B Facility — B1 (LGD 3, 32%)

$200 million Senior Unsecured Notes — Caa1 (LGD 5, 86%)

Outlook revised to under review for possible downgrade from stable.

FoxCo Acquisition Sub L.L.C., headquartered in Ft. Worth, Texas, owns and operates 8 television stations in 8 markets. The stations’ 2007 revenue was approximately $309 million.

Issuer – Local TV Finance, LLC

Corporate family rating — B2

Probability-of-Default rating — B2

$30 million 6-year Senior Secured Revolving Credit Facility – Ba3 (LGD2,
29%)

$275 million 6-year Senior Secured First Lien Term Loan – Ba3 (LGD2, 29%)

$190 million 8-year Senior Notes – Caa1 (LGD5, 83%)

Outlook revised to under review for possible downgrade from negative.
Local TV Finance, LLC, headquartered in Ft. Worth, Texas, owns nine television broadcasting stations in eight mid-sized markets (DMAs 43-100).

Issuer – Newport Television Holdings LLC

Corporate family rating — B2

Probability-of-default rating — B2

$100 million Senior Discount Notes — Caa1 (LGD 6, 94%)

Outlook revised to under review for possible downgrade from stable.

Issuer – Newport Television LLC

$590 million senior secured credit facility — Ba3 (LGD 3, 30%)

$200 million Senior PIK Toggle Notes — Caa1 (LGD 5, 81%)

Outlook revised to under review for possible downgrade from stable.

Newport Television Holdings LLC, headquartered in Kansas City, Missouri, owns and operates 50 television stations (including 17 digital multicast stations) in 22 markets. The company’s 2007 revenue was approximately $338 million.

Issuer – NV Broadcasting, LLC

Corporate Family Rating — B3

Probability-of-default rating — B3

$20 million Senior Secured First Lien Revolving Credit Facility — B1 (LGD 3, 30%)

$195 million Senior Secured First Lien Term Loan Facility — B1 (LGD 3, 30%)

$100 million Senior Secured Second Lien Term Loan Facility — Caa2 (LGD  5, 80%)

Outlook revised to under review for possible downgrade from stable.

Parkin Broadcasting, LLC

$5 million Senior Secured First Lien Revolving Credit Facility — B1 (LGD 3, 30%)

$40 million Senior Secured First Lien Term Loan Facility — B1 (LGD 3, 30%)

Outlook revised to under review for possible downgrade from stable.

NV Broadcasting, LLC, headquartered in Los Angeles, CA owns and/or operates 13 major affiliated broadcast television stations and two CW and two MyTV affiliated broadcast stations in 8 markets. The company has also announced the establishment of KBNZ as the CBS network affiliate serving the Bend,Oregon market. The company’s pro-forma 2007 net revenue was approximately $109 million

RBR/TVBR observation: What these companies, except for Gray, have in common is that they all bought a bunch of television stations quite recently. So, they hadn’t really had much time to start paying down debt when the ad market got sick and the financial projections used to make those station purchases started to fall apart. Moody’s worries that some of them could face “severe liquidity pressure” and might find it hard to even sell assets to cover cash needs in this tough economy.