New York, September 17, 2013 -- Moody's Investors Service assigned a Ba3 rating to the proposed first
lien term loan of Nexstar Broadcasting, Inc. (Nexstar) and
a Caa1 to its proposed 6.875% senior unsecured bonds add-on.
The company plans to use proceeds of approximately $425 million,
together with borrowings under its revolving credit facility, to
fund approximately $100 million of station acquisitions,
the repayment of its 8.875% second lien notes ($325
million outstanding), and related fees and expenses (including the
make-whole premium on the second lien notes).
Moody's affirmed Nexstar's B2 corporate family rating and
its SGL-2 speculative grade liquidity rating. Moody's
also maintained the positive outlook and adjusted LGD point estimates
as shown in the summary of today's action below.
Nexstar Broadcasting, Inc.
....Corporate Family Rating, Affirmed
B2
....Probability of Default Rating, Affirmed
B2-PD
....Speculative Grade Liquidity Rating,
Affirmed SGL-2
....Senior Secured Bank Credit Facility,
Affirmed Ba3, LGD adjusted to LGD2, 29% from LGD2,
24%
....Senior Secured Bank Credit Facility (Term
Loan add-on), Assigned Ba3, LGD2, 29%
....6.875% Senior Unsecured
Bonds, Affirmed Caa1, LGD adjusted to LGD5, 83%
from LGD6, 91%
....6.875% Senior Unsecured
Bonds add-on, Caa1, LGD5, 83%
....Outlook, Remains Positive
Rocky Creek Communications, Inc.
....Senior Secured Bank Credit Facility,
Affirmed Ba3, LGD adjusted to LGD2, 29% from LGD2,
24%
....Outlook, Remains Positive
RATINGS RATIONALE
The approximately $135 million of incremental debt will likely
delay the trajectory to lower leverage, but with the repayment of
the second lien bonds Moody's expects comparable annual interest
expense despite the increase in absolute debt. As such, the
transactions should boost free cash flow given the incremental EBITDA
from the five stations acquired. Furthermore, the acquisitions
expand scale and enhance geographic diversification through the addition
of five stations in three new markets. Based on the combination
of acquisitions and organic growth, Moody's expects Nexstar's
2014 revenue to exceed its 2012 revenue by a factor of 1.75 to
2 times.
Nexstar's B2 corporate family rating incorporates its high leverage (in
the mid 5 times debt-to-EBITDA on a two year average basis
pro forma for acquisitions), which poses challenges for managing
a business vulnerable to advertising spending cycles. However,
we anticipate acquisition synergies, continued expansion of retransmission
and e-Media related cash flow (even after rising payments to the
networks) and modest growth in core advertising revenue, together
with some debt repayment, will facilitate an improvement in the
credit profile. Geographic and network diversity diminishes vulnerability
to regional economic downturns and to the success of content of any particular
network, but the company remains susceptible to economic conditions
and faces continued competition for advertising dollars related to media
fragmentation. Good liquidity also supports the rating, particularly
important given the need to integrate acquisitions, though we consider
synergies achievable at modest cost and with low operational risk.
The positive outlook reflects the potential for an upgrade to B1 based
on continued improvement in the credit profile from the combination of
ongoing core EBITDA growth on a two-year average basis, debt
reduction and accretive acquisitions.
Moody's would consider an upgrade based on expectations for sustained
two-year leverage below 4.75 times debt-to-EBITDA,
sustained positive free cash flow-to-debt in the high single-digit
percent range, and continued modest growth in core advertising revenue
and expansion of the e-Media business. An upgrade would
also require maintenance of good liquidity.
The outlook could revert to stable based on expectations for sustained
two-year leverage remaining above 5 times debt-to-EBITDA,
whether due to weak ad demand, operational challenges or debt funded
dividends or acquisitions. Moody's would consider a downgrade based
on expectations for sustained two-year average debt-to-EBITDA
above 6 times and free cash flow-to-debt below 3%.
Deterioration of the liquidity profile could also trigger a downgrade.
The principal methodology used in this rating 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.
Based in Irving, Texas, Nexstar owns, operates,
programs or provides sales and other services to 72 television stations
in 41 markets. The acquisition of stations from CCA, Citadel
Communications and Stainless Broadcasting stations will expand its operation
to 96 television stations in 51 markets with estimated two year average
revenue of about $600 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.
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.
Karen Berckmann
Asst Vice President - 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 Nexstar's B2 CFR, assigns Ba3 to proposed first lien term loan, Caa1 to proposed senior unsecured bonds
