Moody's turns positive on Local TV LLC


Moody’s Investors Service changed its ratings outlook for Local TV Finance LLC’s to “positive” from “stable” and affirmed the company’s existing ratings including its Caa1 Corporate Family Rating (CFR) and Probability of Default Rating as well as its debt instrument ratings. Local TV has approximately $525 million of rated debt.

“The outlook change reflects Moody’s expectations for improving debt-to-EBITDA ratios as well as other credit metrics over the rating horizon,” said the ratings agency.

“Local TV’s Caa1 corporate family rating reflects high leverage with debt-to-EBITDA ratios of 9.1x for the two-years ended March 31, 2011 (including Moody’s standard adjustments, or 7.9x net debt-to-EBITDA).  Leverage has improved from prior levels due to EBITDA growth from recovery in demand for core advertising as well as the increase in political advertising revenue in 2010. We expect EBITDA for FY2011 to significantly exceed the $31 million reported in FY2009, resulting in two-year debt-to-EBITDA ratios improving further to approximately 7.9x by December 2011 (or approximately 6.7x net debt-to-EBITDA). We believe the company needs to continue reducing debt balances given expected revenue declines in subsequent non-election years and vulnerability to economic cycles. Ratings are supported by good EBITDA margins achieved through cost savings from its operating agreement with FoxCo Acquisition Sub and its management agreement with Tribune Company. Cash balances of a minimum $60 million over the rating horizon provide good liquidity. We note that annual free cash flow-to-debt ratios of less than 3% for 2011 reflect required cash interest payments on the unsecured PIK notes going forward,” said the analysis from Moody’s.
“Lack of national or regional scale constrains ratings, although the company benefits from a station portfolio with diverse network affiliations and leading audience positions as well as negotiating leverage due to its FoxCo and Tribune agreements. As a television broadcaster, Local TV faces increased competition for advertising dollars due to continued media fragmentation,” according to Moody’s.

“The positive outlook reflects our view that Local TV will grow revenues and EBITDA (measured over consecutive two year periods) and apply excess cash to reduce debt balances resulting in two year debt-to-EBITDA ratios below 7.0x (including Moody’s standard adjustments). The outlook also incorporates the company maintaining good liquidity and generating positive free cash flow, despite the $21 million increase in cash interest payments. We would consider an upgrade if debt repayments result in trailing two-year debt-to-EBITDA ratios trending below 7.0x and the company refinances the majority of its 2013 debt maturities. Local TV would also need to maintain good liquidity including expectations for high single-digit and free cash flow-to-debt ratios,” Moody’s explained.

Formed in early 2007 through the acquisition of nine television stations from the New York Times Company, Local TV Finance, LLC (Local TV), owns 10 television stations located in eight mid-size markets (DMAs 43 to 100) across the United States. Network affiliations are diversified among 4 CBS stations, 2 ABC, 2 NBC, 1 CW and 1 My station. Local TV’s parent company is 95% owned by affiliates of Oak Hill Capital Partners. The company maintains headquarters in Fort Wright, Kentucky and revenue for the twelve months ended March 31, 2011, totaled approximately $180 million.

Here are the ratings actions taken by Moody’s:

.Issuer: Local TV Finance, LLC

….Corporate Family Rating: Caa1, No Change

….Probability of Default Rating: Caa1, No Change

…….$30 million Senior Secured Revolver due 2013: B2, No Change (point estimates updated to LGD 2, 26% from LGD 2, 28%)

……..Senior Secured Term loan B due 2013: B2, No Change (point estimates updated to LGD 2, 26% from LGD 2, 28%)

……..9.25%/10% Senior Unsecured PIK Notes due 2015: Caa2, No Change (point estimates updated to LGD 5, 81% from LGD 5, 82%)

Outlook Actions

Issuer: Local TV Finance, LLC

….Outlook, Changed to Positive from Stable