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01 Sep 2004
MOODY'S ASSIGNS B2 RATING TO FISHER COMMUNICATIONS INC'S NEW SENIOR NOTES; RATING OUTLOOK STABLE
Approximately $150 Million of Debt Securities Affected.
New York, September 01, 2004 -- Moody's Investors Service assigned a B2 rating to Fisher Communications
Inc.'s $150 million in senior unsecured notes due
2014. In addition, Moody's assigned Fisher a B2 senior
implied rating, B2 senior unsecured issuer rating, and SGL-2
speculative grade liquidity rating. The proceeds from the note
offering will be used to refinance existing bank facilities and settle
a variable forward sale agreement. The B2 rating reflects Fisher's
high financial leverage and poor operating performance relative to its
peer group balanced by meaningful underlying asset value relative to the
debt burden and the liquidity provided by its approximately $145
million common equity investment in Safeco (Baa1). The SGL-2
rating reflects the company's good liquidity position. This
is the first time Moody's has assigned ratings to Fisher Communications,
Moody's assigned the following ratings to Fisher Communications,
i) a B2 rating to $150 million in senior unsecured notes due 2014,
ii) a B2 senior implied rating,
iii) an SGL-2 speculative grade liquidity rating, and
iv) a B2 unsecured issuer rating.
The rating outlook is stable.
The ratings are also constrained by Fisher's lack of geographic
diversity. Fisher draws all of its revenue and cash flow from the
Northwest where pockets of economic weakness have existed for the better
part of the last four years. The decline that the company's
markets experienced during the recession of 2001 was deeper than that
of the broader economy and the pace of the recovery has been much slower
in the years since. This puts the company at a competitive disadvantage
against its larger, better capitalized, more diversified peers
who can look to other markets for support until the Northwest recovery
gains greater traction. The lack of market diversity further exacerbates
the risks associated with operating with high financial leverage.
With the Debt/EBITDA in excess of 9 times, the company is particularly
vulnerable to the negative impact of economic cycles. In addition,
it is worth noting that the company made a large number of accounting
adjustments in 2003. The company's independent auditor concluded
that a significant deficiency existed in the company's internal
controls during 2003. This weakness adds to the overall risk profile
of the company.
However, the ratings draw support from the high underlying asset
value of the company's station portfolio, particularly the Portland
and Seattle markets which are both top 25 DMAs. It is also important
to note that Fisher is expected to experience some limited relief in the
form of political advertising revenue, particularly in markets where
its stations rank among the top two news providers. The ratings
draw further support from the company's good liquidity position
which is bolstered by its approximately $145 million investment
in Safeco. Further, Fisher's management has demonstrated
a willingness to monetize non-core assets to reduce debt to provide
some balance sheet relief in the past.
The stable outlook incorporates the expectation that Fisher's markets
will remain weak over the near to medium term, balanced by the likelihood
that the company's liquidity is ample to meet any funding requirements
should operating cash flow fall short of covering fixed charges.
If the company is not able to sustain neutral free cash flow over the
intermediate term, a negative rating action would be warranted.
Further, the cash flow forecast relies on the company's ability
to lease its new Seattle office complex. Failure to execute in
this area would also lead to a negative rating action. Substantial
cash flow growth or a sizeable de-leveraging event would be necessary
before a positive outlook would be considered.
The SGL-2 reflects Fisher's good liquidity position and incorporates
the likelihood that the company will be free cash flow neutral over the
next 12 to 18 months balanced by the company's investment in Safeco
which will be unencumbered following the settlement of the variable forward
sale agreement and could be sold at good value to provide an alternative
source of liquidity if needed. Further, the company is not
expected to rely on its liquidity facility and is expected to remain in
compliance with all of its covenants.
As of June 30, 2004 financial leverage is high with Debt/EBITDA
of 9.1 times and cash flow coverage is inadequate with (EBITDA-CapEx)/Interest
of .8 time pro forma for the announced transaction. It is
worth noting that Moody's has added back $5.5 million
of one time charges to EBITDA but does not include dividends Fisher receives
from its common stock portfolio. Moody's expects operating cash
flow to improve in the near-term resulting from growth in political
advertising and rising capacity utilization in Fisher Plaza, the
company's downtown Seattle office complex. Planned capital
investment should abate with the completion of the Fisher Plaza construction
project. The combination of these factors is expected to improve
the company's credit metrics through the remainder of 2004.
However, the company is likely to experience difficulty growing
revenue significantly enough in 2005 to replace 2004 political revenue.
The notes are unsecured, rank senior to any future subordinated
indebtedness, and benefit from subsidiary guarantees. This
instrument is the only class of rated debt and will sit behind a $20
million revolving credit facility in the capital structure. This
warrants placing the rating on par with the B2 senior implied rating.
Fisher Communications, Inc., headquartered in Seattle,
Washington is a television and radio broadcasting company comprised of
stations located in the Northwest.
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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