That’s not a typo – finally a broadcasting company upgrade from Moody’s Investors Service. But the upgrade is only for Barrington Broadcasting Group’s probability of default rating and speculative grade liquidity rating, so the ratings update from Moody’s is a mixed bag. In all, about $300 million of rated debt is affected.
“Moody’s Investors Service changed the probability of default rating for Barrington Broadcasting Group LLC (Barrington) to Caa1 / LD following the company’s repurchase of a portion of its Senior Subordinated Notes due 2014 ($125 million outstanding prior to buyback) at a significant haircut to the original principal amount. Moody’s considers this transaction and the ongoing bond repurchase program a distressed exchange due to the significant monetary loss relative to the principal value of the bonds incurred by participating bondholders, as well as Barrington’s weak credit profile. The LD designation signifies a limited default and also applies to future purchases under the bond buyback authorized with the February 2009 amendment to the credit agreement (remaining cash capacity for bond buyback as of March 2009 was $1 to $2 million and is permitted through February 2010).
Moody’s also upgraded Barrington’s Speculative Grade Liquidity Rating to SGL-3 from SGL-4 due to expectations for an improved cushion of compliance with bank financial covenants following the approximately $68 million debt reduction and the $16 million cash contribution from Barrington’s equity sponsors (which is added to EBITDA for covenant calculation purposes),” Moody’s said.
That $16 million is the capital injection that Bob Pittman’s Pilot Group made in February.
“Notwithstanding the significant debt reduction, Moody’s affirmed the Caa1 corporate family rating and negative outlook, incorporating uncertainty that the current pace of declining market spending on TV advertising could continue unabated over the near term. The PDR will revert to Caa1 and the LD designation will be removed in approximately 3 days. The Caa1 PDR reflects the diminished probability of default of Barrington’s post-exchange credit profile, compared to the prior Caa2 PDR.
Moody’s also downgraded the rating on Barrington’s senior subordinated notes to C from Caa3. Subordinated note holders accepted a principal reduction of over 80%, and the rating reflects this substantial loss. Based on the post-exchange capital structure, Moody’s expects to change the rating on the remaining portion of the subordinated bonds to Caa3 in approximately 3 days. Moody’s also downgraded the secured bank rating to B3 from B2, because with the reduction in subordinated bonds outstanding, the cushion of junior capital for bank lenders diminishes,” Moody’s concluded.
RBR/TVBR observation: Once again, we note the value of an equity backer, Bob Pittman’s Pilot Group, which understands the broadcasting business and is willing to put more cash on the line.
Here is a summary of the Moody’s actions:
Barrington Broadcasting Group LLC
….Probability of Default Rating, Changed to Caa1 / LD from Caa2
….Affirmed Caa1 Corporate Family Rating
….Senior Subordinated Bonds, Downgraded to C, LGD5, 83% from Caa3, LGD5, 72%
….Senior Secured Bank Credit Facility, Downgraded to B3, LGD3, 37% from B2, LGD2, 19%
….Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4