S&P Considers Local TV Stable Despite Downgrade

NEW YORK: Standard & Poor’s downgraded its credit rating for Newport, Ky.-based Local TV, but deemed it a reasonable risk due in part to its stations’ newscasts.

“Local TV’s stations have either a No. 1 or No. 2 news ranking in most of their markets, which is important to stations’ profitability and to their ability to attract political advertising, and contributes to our assessment of the company’s business risk profile as ‘fair,’” S&P said.

Local TV, which owns and/or operates 21 TV stations, is planning to increase its term loan debt by $70 million to pay a dividend, S&P said. The move will boost its pro forma debt-to-trailing eight quarter average EBITDA from 5.5 to 6.5x, exceeding S&P’s 6x threshold for B, down from B+.

S&P said the rating outlook is stable. It also downgraded Local TV’s senior secured debt from BB to B+, while revising its recovery rating from 1 to 2, or from a 90 to 100 percent recovery expectation to one between 70 and 90 percent. The senior secured debt consists of a $250.8 million term loan, including the $70 million addition, and an undrawn $15 million revolving credit facility due 2015.

S&P also revised its recovery rating on the senior unsecured notes of Local TV Finance LLC, a subsidiary of Local TV, to 6, indicating its expectation of negligible—0 to 10 percent—recovery for note holders in the event of a payment default, down from a 5, or 10 to 30 percent. The issue-level rating on the debt was lowered to CCC+ from B.

S&P stated that Local TV’s portfolio of stations indicated “only modest diversification, with a revenue concentration in CBS-affiliated stations,” that account for nearly half of the company’s revenues.

“Although CBS has led all the networks in total households for nine of the past 10 years, the concentration still leaves Local TV vulnerable to declines in the network’s audience ratings,” S&P said. The ratings firm noted that Local TV’s ad revenues are “highly sensitive to economic downturns,” and that EBITDA can swing as much as 20 percent up or down on election cycles. It also said the business faced long-term pressure from audience fragmentation and the Internet.

S&P said it expects revenue growth in the high teens during the second half of this year, with low, single-digit percentage growth in core advertising and “healthy” growth in retransmission consent revenues. EBITDA is expected to grow more than 50 percent for the second half of 2012 on political advertising and retrans. Revenues are expected to decline at a low-single-digit rate for 2013, with a decline in EBITDA of 10 to 15 percent.

S&P said Local TV’s liquidity sources consisted of pro forma cash balances of about $12.9 million and the unused $15 million revolving credit facility due 2015. The company is expected to generate between $50 million to $55 million in 2012, and between $40 million to $45 million in 2013, when it has a $1.5 million payment due in May.