Moody’s Investor Service notes that the debt Nexstar is taking on to fund acquisitions is going to jack up its leverage, but over half of the increase is expected to melt away due to synergies associated with the acquisitions.
The company’s Corporate Family Rating remains at B2, and its outlook remains positive.
Moody’s Karen Berckmann said that leverage of 5x can be expected to shoot up to 5.5x, but the anticipated synergies are expected to bring it back down as far as 5.2x, and further stated that it should happen within 12 months.
Berckmann said, “The incremental debt will likely delay debt reduction and slow the trajectory to lower leverage. However, Moody’s continues to believe the company could achieve sustained two year average leverage below 4.75 times debt-to-EBITDA, the trigger laid out for an upgrade, by the end of 2014, supporting the positive outlook. Furthermore, the acquisition expands the company’s scale and enhances geographic diversification, with the addition of nineteen television stations and seven associated digital sub-channels in ten markets, seven of which are new markets. The combination also creates two new duopolies and adds five duopolies, supporting continued strong EBITDA margins.”
If Moody’s does bring leverage to 4.75x in the time frame Berckmann mentioned, it could be looking at an upgrade to B1, provided it also maintains good liquidity.
If the company remains at the 5x-or-higher level, regardless of what types of events produce that result, and that includes difficulty selling advertising or taking on too many additional acquisitions, it could see its outlook move to stable. It it goes about 6x, it could be looking at a downgrade.