LIN TV, Belo Risk Breaching Loan Terms

Broadcasters struggle to remain compliant
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PROVIDENCE, R.I. and DALLAS: LIN TV and Belo are at risk for breaching loan agreements, Bloombergreported today. Neil Begley of Moody’s told the news service that the broadcasters could fall out of covenant if earnings-to-debt ratios fall below the minimum required in their credit agreements. Executives at both TV groups said the expected to stay in compliance; LIN seeking amended terms if necessary, and Belo hoping it won’t be.

Ratios are calculated based on earnings before interest, taxes, amortization and depreciation--EBITDA--compared to debt, including bank loans. Ratings firms have slashed media company debt ratings lately when leverage starts exceeding 3x. Banks set their own terms on individual loans.

Belo (NYSE: BLC) ended last year with debt of $1.09 billion and pro forma EBITDA of $255 million. LIN (NYSE: TVL) had $743.4 million in debt and $85.3 million EBITDA.

Other broadcasters facing breach have filed for bankruptcy or renegotiated loans at more expensive extended terms. Young Broadcasting of New York filed Chapter 11 in February after skipping a $10.6 million in interest payments. Gannett of McLean, Va., recently issued an offer to trade $200 million in debt for higher interest notes due four years after the originals. Nexstar Broadcasting of Irving, Texas took out payment-in-kind toggle notes, which allow it to pay interest with stocks or bonds rather than cash. Univision recently used PIK-toggles to pay interest on $1.5 billion bonds, according to The Wall Street Journal.

Moody’s mentioned Belo’s potential for defaulting when the broadcasters’ rating was lowered on $642 million in debt in early March. The company renegotiated its bank credit facility from $600 million to $550 million in the same period. Analysts say LIN could reach its covenant thresholds during the second half of this year, particularly if the ad market remains soft.

LIN, which owns and/or operates 27 TV stations, is trading at around $1.50 after dropping to 50 cents in February. Belo, which has 20 TV stations, is trading at around 94 cents after hitting a low of 47 cents in February.