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Rating Action:

Moody's Affirms Nexstar's B1 CFR, assigns B3 rating to new 2027 unsecured notes; outlook stable

18 Jun 2019

New York, June 18, 2019 -- Moody's Investors Service ("Moody's") today affirmed the B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) of Nexstar Broadcasting, Inc. (Nexstar). Moody's also assigned Ba3 ratings to the proposed $700 million Term Loan A and $3,040 million Term Loan B and a B3 to the proposed $1,120 million in senior unsecured notes due 2027. Moody's also affirmed the Ba3 rating on the existing senior secured facilities , the B3 on the existing senior unsecured notes and the SGL-2 speculative grade liquidity rating. The outlook is stable.

The additional debt will be used along with around $1.4 billion of cash to finance the purchase of Tribune Media Company (B1, stable) (Tribune) for a total consideration of around $6.4 billion (post-divested stations). The transaction is expected to close in Q3 2019 and the proceeds from the new unsecured notes will be held in escrow until then.

Assignments:

..Issuer: Nexstar Broadcasting, Inc.

....Senior Secured Term Loan A, Assigned Ba3 (LGD3)

....Senior Secured Term Loan B, Assigned Ba3 (LGD3)

....Gtd Senior Unsecured Global Notes, Assigned B3 (LGD5)

Affirmations:

..Issuer: Media General Financing Sub, Inc

....Senior Unsecured Global Notes, Affirmed B3 (LGD5)

..Issuer: Mission Broadcasting, Inc.

....Senior Secured Term Loan B3, Affirmed Ba3 (LGD3)

....Senior Secured Revolving Credit Facility, Affirmed Ba3 (LGD3)

..Issuer: Nexstar Broadcasting, Inc.

.... Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Secured Term Loan A4, Affirmed Ba3 (LGD3)

....Senior Secured Term Loan B3, Affirmed Ba3 (LGD3)

....Senior Secured Revolving Credit Facility, Affirmed Ba3 (LGD3)

....Gtd Senior Unsecured Global Bonds, Affirmed B3 (LGD5 from LGD6)

Outlook Actions:

..Issuer: Nexstar Broadcasting, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

The affirmation of the B1 CFR reflects the company's improved business profile following the acquisition which offsets the weakening in financial metrics resulting from the additional debt. With pro-forma 2019 revenues estimated by Moody's at around $4.1 billion post divestitures, Nexstar will be the largest local US TV broadcaster by revenue. The addition of Tribune's channels adds a portfolio of quality assets in strong Designated Market Areas (DMA): it adds 12 stations in the top 25 DMAs, and 20 in the top 50. The improved geographic reach diversifies reliance on local economies and advertising demand and positions the company strongly to benefit from political advertising revenue which is expected at record levels in 2020 in the run up to the presidential election.

Pro-forma for the acquisition, 2019 Moody's adjusted leverage (two year average and including synergies) is expected to increase to around 5.6x from 4.4x at year end 2018. The company is committed to reducing leverage over the next 18 months and its board has paused its planned share buyback program to refocus free cash flow towards debt repayment. Given the strong free cash flow generation ability of the company (on a pro-forma basis $1.2 billion in 2018) and the expectations that 2020's political ad spend will outperform 2018's, Moody's expects the company to reduce leverage rapidly after the transaction so that Moody's adjusted leverage (on a two year average and including synergies) declines to around 5x by year end 2020.

Following the acquisition, Nexstar will have the widest coverage out of all local broadcasting peers with reach of 39% of the US population (including UHF discount). This is the maximum currently allowed under FCC rules for a single broadcaster and limits any future material M&A transactions involving broadcast stations.

Nexstar expects to generate around $160 million of synergies in the first year after the Tribune acquisition split between $85 million of cost savings which Moody's expects to be straightforward to achieve and $75 million of contractual retransmission-fee step-ups.

The company has a good liquidity profile supported by its $175 million revolver which Moody's expects will remain mostly undrawn. There is a first lien net leverage maintenance covenant which the company is expected to be well in compliance with over the next 18 months. The company generates high free cash flow which Moody's expects will be mostly used to reduce debt in 2019 and 2020.

Nexstar's B1-PD PDR, at the same level as the CFR, reflects our assumption of a 50% recovery rate, as is customary for capital structures made up of a mixed priority of claims. The capital structure also includes unrated claims for trade payables and lease rejection claims. The senior secured facilities are rated Ba3, on notch above the CFR given their secured, priority first lien claim on material owned property and assets and substantial lift provided by the senior unsecured facilities which are rated B3, two notched below the CFR reflecting the material amount of claims ranking ahead of them.

Rationale for the stable outlook

The stable outlook on the ratings reflects Moody's expectations that Nexstar can and will rapidly reduce leverage to levels more in line with its B1 rating such that at year end 2020 Moody's adjusted leverage will be around 5x. The stable outlook also reflects Moody's expectations that the company will not engage in further material M&A in that time frame.

Factors That Could Lead to an Upgrade

Positive pressure on the ratings could develop should Moody's adjusted leverage (on a two year average) improve to below 4.5x on a sustainable basis and should the company maintain Moody's adjusted free cash flow to debt (on a two year average) in the high single digit percentage.

Factors That Could Lead to an Downgrade

Negative ratings pressure could develop should the company's Moody's adjusted leverage (on a two year average) increase above 5.5x on a sustained basis or should the company's liquidity weaken materially.

The principal methodology used in these ratings was Media Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Chicago, Tribune is a publicly listed company that operates a diverse portfolio of television and digital properties driven by news, entertainment and sports programming. Tribune is composed of 42 owned or operated local television stations in 33 markets, reaching approximately 50 million households; national entertainment cable network WGN America, whose reach is more than 77 million households; and a variety of digital applications and websites reaching 54 million monthly unique online visitors. Tribune also includes Chicago's WGN-AM and the national multicast networks Antenna TV and THIS TV. Additionally, the company owns and manages a significant number of real estate properties across the US and holds a variety of investments, including a 31% interest in Television Food Network, G.P., which operates Food Network and Cooking Channel; a 6% interest in Careerbuilder. Total net revenue totaled $2 billion in 2018.

Based in Irving, Texas, Nexstar is one of the largest US television broadcasters, owning, operating or providing sales and services to 171 television stations in 40 states, across 100 markets covering 26% of US television households. The company operates in six of the top 25 markets, and 20 of the top 50. Additionally, Nexstar stations are ranked first or second in viewership in 76% of their markets. Total net revenue were $2.8 billion in 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christian Azzi
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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