Ratings assigned to $1.1 billion funded portion of exit financing
New York, November 28, 2012 -- Moody's assigned a Ba3 rating to Tribune Company's ("Tribune")
proposed $1,100 million 1st lien senior secured term loan
as well as a Ba3 Corporate Family Rating and Probability of Default Rating.
Net proceeds from the new term loan plus balance sheet cash will fund
roughly $4.2 billion of cash payments for creditor settlements
and expenses including transaction fees. The rating outlook is
stable.
Assigned:
..Issuer: Tribune Company
.Corporate Family Rating (CFR): Assigned Ba3
.Probability of Default Rating (PDR): Assigned Ba3
$1,100 million 1st Lien Sr Secured Term Loan
(matures in 7 years): Assigned Ba3, LGD4 -- 51%
Outlook Actions:
..Issuer: Tribune Company
.Outlook is Stable
RATINGS RATIONALE
The Ba3 Corporate Family Rating reflects moderate pro forma debt-to-EBITDA
of 3.0x (including Moody's standard adjustments) and the
national scale of Tribune's media assets. These properties
generate $700 million or more of cash flow from broadcasting and
publishing operations including cash distributions from investments in
faster growing cable network and online media assets. Adjusted
EBITDA is more than sufficient to cover capital spending, debt service,
as well as income tax and non-operating tax payments resulting
in a minimum 13% free cash flow-to-debt ratios in
2013 and increasing thereafter, despite being a full tax payer.
Tribune owns one of the largest television broadcasting groups including
23 television stations in large markets with 35% coverage of US
households. Tribune's superstation, WGN America,
generates meaningful carriage fees and management's focus on growing
retransmission fees for remaining stations is expected to result in more
than approximately 20% of broadcasting revenues being generated
from recurring fees and copyright royalties by 2015 compared to 10%
currently. We expect growth in EBITDA from the broadcasting segment
over the 2-year cycle plus cash distributions from media investments
will offset continued EBITDA declines from publishing operations.
Extensive cost-cutting initiatives under Chapter 11 protection
have kept publishing assets cash flow positive with a 14% cash
flow contribution margin, despite a 50% revenue drop since
2006 to $2 billion currently. Exposure to publishing currently
stands at 33% of consolidated adjusted EBITDA. Moody's
believes cash flow contributions from newspaper operations will continue
to decline and, combined with lower margins, will be a drag
on performance. Tribune's earnings will continue to shift toward
better-positioned local broadcast properties supplemented by cash
dividends from equity investments. Proposed terms permit Tribune
to fund dividends from the sale of publishing and real estate assets subject
to certain conditions. The potential leakage of real estate value
and the loss of EBITDA contribution from publishing with no reduction
in debt would be credit negative, only partially offset by potentially
reduced exposure to publishing.
The Ba3 CFR incorporates Moody's expectation that, excluding
the impact of potential divestitures, Tribune's total revenues
will decline in the mid single-digit percentage range in 2013.
The decline will be driven by the lack of significant political television
ad revenues, continued declines in publishing revenues, and
the absence of non-recurring gains related to copyright royalties
booked in the first half of 2012 partially offset by low single-digit
percentage growth in core broadcasting revenues. "Moody's
believes competitive pressures, media fragmentation, and tepid
economic growth create a soft advertising environment which will lead
to low single-digit percentage growth for core broadcasting revenues
and continued publishing revenue erosion," stated Carl Salas,
Moody's Vice President and Senior Analyst. Revenue concentration
with CW affiliates and the typical #5 market ranking of Tribune's
stations behind the Big Four networks weigh on debt ratings, as
advertisers typically seek stations ranked #1 or #2. This
weakness is notable in the largest markets where the company faces stiff
competition from the owned and operated stations of the Big Four.
Tribune experienced an approximate 5% decrease in revenues for
its 10 television stations in markets ranked #1 through #12 for
the nine months ended September 30, 2012 compared to last year,
excluding the negative impact from the temporary blackout with Cablevision.
The proposed credit facilities include an asset-backed $300
million revolver commitment (unrated) and a covenant-lite $1.1
billion term loan. Moody's expects Tribune to have good liquidity
over the next 12 to 18 months with at least $300 million in cash
balances plus a minimum of $150 million of borrowing capacity under
the $300 million ABL revolver.
The stable outlook reflects our expectation that EBITDA growth in the
broadcasting segment over a 2-year cycle, augmented by cash
distributions from media investments, will offset continued EBITDA
declines in the publishing segment. For 2013, we expect total
revenues to decline in the mid-single digit percentage range followed
by a rebound in 2014 given election year demand for political advertising
and meaningful growth in retransmission fees. The outlook also
reflects our expectation that 2-year average debt-to-EBITDA
leverage will remain below 3.50x (including Moody's standard
adjustments) and Tribune will maintain at least good liquidity over the
next 12-18 months providing the company flexibility to execute
its operating strategies and manage unforeseen capital needs. The
outlook incorporates the potential for the sale of publishing and real
estate assets with proceeds used to fund dividends, as permitted
under the proposed credit agreement, accompanied by partial debt
reduction. In November 2012, the FCC approved a permanent
waiver for Tribune's cross ownership in Chicago, and approved
temporary waivers for the remaining four markets (Los Angeles, New
York, South Florida, and Hartford). We note Tribune
has consistently been approved for cross-ownership waivers in these
markets.
Ratings could be downgraded if revenue declines in the publishing segment
accelerate or if overall operating weakness, acquisitions,
cash distributions to shareholders, or other leveraging events lead
to 2-year average debt-to-EBITDA ratios being sustained
above 3.75x (including Moody's standard adjustments) or 2-year
average free cash flow-to-debt ratios being sustained below
7%. Failure to maintain at least good liquidity to absorb
a cyclical downturn in advertising demand could also result in a downgrade.
Ratings could be upgraded if publishing revenues stabilize, broadcasting
stations demonstrate consistent growth in core advertising revenue,
and Moody's comes to expect that financial policies will remain conservative
such that 2-year average debt-to-EBITDA ratios are
expected to be sustained below 2.50x (including Moody's standard
adjustments) and 2-year average free cash flow-to-debt
ratios are expected to be sustained in the low double digit percentage
range or above.
Tribune Company is headquartered in Chicago, IL, and operates
broadcasting assets including 23 television stations and one radio station
(36% of estimated 2012 revenue, 48% adjusted EBITDA)
in 19 markets ranked #1 to #52, including the top five markets
and seven of the top ten markets reaching 35% of U.S.
households. The company also operates the third largest newspaper
group in the U.S. within its publishing segment (64%
of estimated 2012 revenue, 33% adjusted EBITDA). The
Chicago Tribune, Los Angeles Times and six other metropolitan dailies
have a combined daily and Sunday circulation of 1.8 million and
2.9 million, respectively. In addition, Tribune
holds minority equity interests in several media enterprises including
TV Food Network, Classified Ventures, and CareerBuilder which
contribute quarterly cash distributions (19% of estimated 2012
adjusted EBITDA). The company filed for Chapter 11 bankruptcy protection
in December 2008 and is expected to emerge in the very near future with
a significantly lower debt load. As proposed, Tribune is
expected to exit with $1.1 billion of funded debt,
significantly reduced from $12.9 billion related to the
take private transaction led by Sam Zell. Certain creditors will
become owners with funds of Oaktree Capital Management (23% ownership),
Angelo, Gordon & Company (9%), and JPMorgan Chase
(9%) becoming the largest shareholders and controlling the board
of directors. Revenues for the 12 months ended September 30,
2012 totaled roughly $3.1 billion.
The principal methodology used in rating Tribune Company was the Global
Broadcast and Advertising Related Industries Methodology published in
May 2012. Other methodologies used include Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's Investors
Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's office
that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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this announcement provides relevant regulatory disclosures in relation
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the lead rating analyst and to the Moody's legal entity that has issued
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Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Ba3 to Tribune's proposed 1st lien sr secured term loan; assigns Ba3 CFR
