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Rating Action:

Moody's affirms FoxCo's B2 CFR; affirms ratings on the amended and increased 1st lien credit facilities

26 Feb 2013

Approximately $1 billion of rated debt affected

New York, February 26, 2013 -- Moody's Investors Service ("Moody's") affirmed the B2 rating on FoxCo Acquisition Sub, LLC's ("FoxCo") amended and increased 1st lien senior secured term loan B and the existing 1st lien senior secured revolver. Proceeds from the proposed increase in the term loan B plus balance sheet cash will be used to fund a $290 million special dividend. Amended terms to the credit agreement will provide greater flexibility for asset sales and will relax voting requirements related to change of control. Moody's also affirmed the B2 Corporate Family Rating (CFR) and B2-PD Probability of Default Rating (PDR). The rating outlook is stable.

Affirmed:

..Issuer: FoxCo Acquisition Sub, LLC

....Corporate Family Rating: Affirmed B2

....Probability of Default Rating: Affirmed B2 --PD (assumes the term loan remains covenant lite, as proposed)

...$20 million 1st Lien Sr Secured Revolver due January 2017: Affirmed B2, LGD3 -- 49%

...$1,000 million 1st Lien Sr Secured Term Loan B due July 2017 (previously $763 million outstanding): Affirmed B2, LGD3 -- 49%

Outlook Actions:

..Issuer: FoxCo Acquisition Sub, LLC

.Outlook is Stable

RATINGS RATIONALE

FoxCo is weakly positioned in the B2 corporate family rating due to high leverage with a 2-year average debt-to-EBITDA ratio of 6.7x estimated for December 31, 2012 (including Moody's standard adjustments, pro forma for the proposed dividend) and recent track record for distributions. The rating is forward looking as we expect 2-year average debt-to-EBITDA ratios to improve to less than 6.0x by FYE2013 supported by low single-digit percentage core revenue growth, contractual increases in high margin retransmission fees, and at least 9% to 10% free cash flow-to-debt ratios. The proposed transaction elevates annual interest expense due to the increase in funded debt balances to $1.0 billion from $763 million; however, 2-year average EBITDA coverage of interest expense is expected to remain good at roughly 3.0x for the next 12 months. We note that all debt is pre-payable which Moody's believes is helpful in providing Oak Hill flexibility in exercising strategic options. The financial sponsor has chosen to receive dividends totaling $490 million within six months rather than fund acquisitions or reduce debt balances. Given high leverage as proposed, ratings could be downgraded if initial debt balances exceed these levels due to an upsizing of credit facilities. Moody's believes leverage needs to be reduced below projected 2013 levels to position the company for a refinancing of the term loan B prior to its 2017 maturity and prior to the renewal of the Fox affiliation agreement which ends in July 2018.

For LTM September 30, 2012, FoxCo achieved 8.7% growth in net revenues driven by significant increases in political advertising and retransmission fees. We expect a marked increase in revenues for the remainder of FY2012 given high demand for political advertising at FoxCo's stations. Looking forward, we expect the company to generate low single-digit percentage growth for core advertising revenues in 2013 (excludes absence of significant political ad sales) supported by the company's focus on local markets. Beyond 2013, FoxCo will continue to benefit from meaningful increases in retransmission revenues and related cash flow supplemented by significant political revenues in 2014. Ratings are constrained by the company's lack of national scale, a station portfolio with mostly Fox affiliates, and event risk including additional dividends. FoxCo faces heightened competition for advertising dollars due to ongoing media fragmentation as cable television and digital services increase their share of ad dollars. Ratings are supported by good EBITDA margins due to growing high margin retransmission revenues as well as cost savings from its operating agreement with Local TV and management contract with Tribune Company. Cash balances of a minimum $10 million over the next 12 months plus high single-digit percentage free cash flow-to-debt ratios contribute to good liquidity.

The assigned ratings are subject to review of final documentation and assume no increase in the proposed dividend nor aggregate amount of credit facilities.

The stable outlook reflects our view that FoxCo will grow core advertising revenues as well as net retransmission fees and apply excess cash to reduce debt balances resulting in 2-year debt-to-EBITDA ratios improving from the initial 6.7x level (including Moody's standard adjustments) estimated for the proposed refinancing and dividend. The outlook also incorporates our expectations that the company will maintain good liquidity and generate high single-digit percentage free cash flow-to-debt ratios in the absence of subsequent dividends.

Ratings could be downgraded if the company upsizes the new term loan B resulting in initial leverage exceeding currently proposed levels. Ratings could also be downgraded if the company is not able to grow core revenues due to soft ad demand in key markets reflecting economic weakness in key markets or lack of competitive Fox programming, and resulting in 2-year debt-to-EBITDA ratios (including Moody's standard adjustments) being sustained above 5.75x beyond 1Q2014. Weakened liquidity, including low single-digit free cash flow, could also lead to a downgrade. An upgrade is not likely given ownership by a financial sponsor and FoxCo's recent track record for increasing debt balances and funding distributions; however, we could consider an upgrade of ratings if management provides assurances they would operate the company consistent with the higher rating and if revenue growth and debt repayments result in trailing 2-year debt-to-EBITDA ratios being sustained comfortably below 4.50x with low double digit free cash flow-to-debt ratios.

The principal methodology used in this rating was the Global Broadcast and Advertising Related Industry 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.

Formed in 2008 through the acquisition of eight stations from Fox Television Stations, Inc., FoxCo Acquisition Sub, LLC owns or operates 10 stations in DMA's ranked #17 to #57, including seven owned Fox affiliates and one owned CBS affiliate, plus two stations operated under Local Marketing Agreements with Tribune Broadcasting. Local TV Holdings, LLC, which is 95% owned by affiliates of Oak Hill Capital Partners, serves as FoxCo's parent company. The company maintains headquarters in Newport, Kentucky and net revenue for the 12 months ended September 30, 2012 totaled $372 million.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

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 affirms FoxCo's B2 CFR; affirms ratings on the amended and increased 1st lien credit facilities
No Related Data.
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