Standard and Poor’s, in an action announced on Friday, lowered its corporate credit rating for TV group owner Belo Corporation to “B+” from “BB-.” However, the rating agency said its rating outlook for Belo is “stable.”
At the same time, S&P lowered its issue-level rating on the company’s senior unsecured debt to ‘B’ from ‘B+’. The recovery rating on this debt remains unchanged at ‘5’, indicating S&P’s expectation of modest (10% to 30%) recovery for debtholders in the event of a payment default.
“The downgrade reflects our expectation that Belo’s operating performance will remain weak over the intermediate term, which will cause the company’s leverage metrics to stay above a level appropriate for a ‘BB-‘ rating,” said Standard & Poor’s credit analyst Deborah Kinzer. “In addition, we are concerned that the company will need to amend the financial covenants in its credit agreement to avoid a covenant violation as early as the fourth quarter of 2009,” she added.
The S&P analysis said Belo’s declining EBITDA has quickly absorbed the moderate cushion the company obtained from the February 2009 amendment to its credit agreement, despite cutting costs and modestly reducing debt. As of June 30, 2009, the company had a roughly 16% EBITDA cushion of compliance with its leverage covenant. Leverage per lenders was 5.30x, versus a 6.25x covenant at June 30, 2009.
“Although we foresee that the company will continue to generate modest discretionary cash flow that could be used for debt repayment, we expect that EBITDA will continue to deteriorate from large declines in local and national ad revenue. As of June 30, 2009, Belo had roughly $1.1 billion of debt outstanding,” S&P said.