Nexstar gets an upgrade


A few days ago it was Barrington, now it’s Nexstar getting an upgrade of its credit rating. Standard & Poor’s Ratings Service raised the corporate credit rating for Nexstar after reviewing the impact of its recent note swap. Yes, that’s the same note swap that got Nexstar a downgrade from Moody’s. Go figure.

S&P said it raised its corporate credit rating on Nexstar Broadcasting Group Inc. and related entities to ‘B-‘ from ‘SD’ (selective default). The rating outlook is stable.

“At the same time, we raised our issue-level rating on Nexstar Broadcasting Inc.’s 7% senior subordinated notes due 2014 to ‘CCC’ (two notches lower than the ‘B-‘ corporate credit rating) from ‘D’. The recovery rating on this debt remains at ‘6’, indicating our expectation of negligible (0% to 10%) recovery for debtholders in the event of a payment default.

In addition, we revised our recovery rating on the senior secured debt of Nexstar Broadcasting Inc. and Mission Broadcasting to ‘2’, indicating our expectation of substantial (70% to 90%) recovery for lenders in the event of a payment default, from ‘1’. We lowered the issue-level rating on this debt to ‘B’ (one notch higher than the corporate credit rating) from ‘B+’, in accordance with our notching criteria for a ‘2’ recovery rating.

We also affirmed the issue-level and recovery ratings on Nexstar Broadcasting Group’s 11.375% senior discount notes due 2013 at ‘CCC’ and ‘6’, respectively.

The issue-level ratings on the secured debt and senior discount notes were removed from CreditWatch, where they were placed with negative implications on March 10, 2009,” S&P reported.

“The rating actions reflect our reassessment of the company’s financial condition and business outlook following the consummation of its debt exchange offer,” explained Standard & Poor’s credit analyst Deborah Kinzer. “We believe Nexstar’s revised capital structure and reduced interest burden will increase the company’s headroom under its bank covenants in the short run. In addition, we expect that the company would have sufficient EBITDA to cover potential interest rate increases if recessionary pressures on TV ad demand force it to seek an amendment to its credit agreement or a senior leverage covenant waiver later in the year,” she added.

According to S&P, the ‘B-‘ rating reflects Nexstar’s high debt leverage from aggressive debt-financed acquisitions, advertising’s vulnerability to economic downturns, and TV broadcasting’s mature revenue growth prospects. The company’s cash flow diversity from major network-affiliated TV stations in midsize markets and TV broadcasting’s good EBITDA margin minimally offset these factors.

Nexstar operates 51 TV stations, reaching 8.2% of U.S. TV households, S&P noted.

RBR/TVBR observation: The lesson? Credit analysis is art as well as science. You crunch the numbers, but then you also have to make judgment calls. Moody’s decided that the net impact of the note swap was, in the long run, negative. S&P made a different call.