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Rating Action:

Moody's assigns B1 CFR to Mercury New Holdco, Inc. ("New Media General"), assigns Ba3 to proposed credit facilities and B3 to new notes; outlook is stable

28 Oct 2014

$2.4 billion of rated debt affected

New York, October 28, 2014 -- Moody's Investors Service ("Moody's") assigned a B1 Corporate Family Rating to Mercury New Holdco, Inc. ("New Media General"), the new holding company for the pending merger of Media General, Inc. and LIN Media LLC ("LIN"). Moody's also assigned Ba3 to Media General Inc.'s proposed $150 million 1st lien senior secured revolving credit facility, new Term Loan A, and incremental Term Loan B-2, and assigned a B3 to the proposed senior notes at Media General Financing Sub, Inc. Proceeds from the new debt facilities along with balance sheet cash and divestiture proceeds will be used to fund the cash consideration for the merger and repay certain debt instruments of LIN. The rating outlook is stable.

..Issuer: Mercury New Holdco, Inc. ("New Media General")

.... Corporate Family Rating, Assigned B1

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

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

Upgrades:

..Issuer: Media General, Inc.

....Senior Secured Term Loan due 2020, Upgraded to Ba3, LGD3 from B1, LGD3

..Issuer: Shield Media LLC

....Senior Secured Term Loan due 2018, Upgraded to Ba3,LGD3 from B1, LGD3

Assignments:

..Issuer: Media General, Inc.

....Proposed Senior Secured Revolver, Assigned Ba3, LGD3

....Proposed Senior Secured Term Loan A, Assigned Ba3, LGD3

....Proposed Senior Secured Incremental Term Loan B-2, Assigned Ba3, LGD3

..Issuer: Media General Financing Sub, Inc. (to be merged into LIN Television Corporation)

....Proposed $300 million Senior Unsecured Notes, Assigned B3, LGD6

LGD adjustments:

..Issuer: LIN Television Corporation

....6.375% Senior Unsecured Notes due 2021, adjusted from LGD5 to LGD6

Outlook Actions:

..Issuer: Mercury New Holdco, Inc ("New General Media")

....Outlook, Assigned Stable

..Issuer: Media General Financing Sub, Inc. (to be merged into LIN Television Corporation)

....Outlook, Assigned Stable

RATINGS RATIONALE

New Media General's B1 corporate family rating reflects Media General's pending merger with LIN resulting in expanded coverage of US households as well as favorable geographic and network diversification. Pro forma for the merger and announced transactions, leverage will remain high with 2-year average debt-to-EBITDA of 5.3x estimated for September 30, 2014 (including Moody's standard adjustments). Weak demand for national advertising experienced by most broadcasters in 2Q14 caused Media General's core advertising revenue to increase less than 1% for the half of 2014. For the second half of 2014, we expect Media General to generate good free cash flow given significant political ad demand, providing the ability to repay debt and improve financial credit metrics. Typical of television broadcasters, ratings are pressured by the company's vulnerability to cyclical advertising downturns and increasing media fragmentation. Ratings are supported by the company's significantly increased scale and consistent #1 or #2 revenue rankings in 83% of its existing and soon-to-be-added markets, several of which benefit from traditionally strong political advertising demand. Ratings are also supported by Media General's good local news programs and the addition of LIN's digital operations. We believe the scale provided by the merger of Media General and LIN Media will help the company achieve operating efficiencies and better position the company to negotiate higher retransmission fees with its cable, satellite and telco distributors to offset expected increases in reverse compensation paid to networks. Post merger, we expect the company to generate annual EBITDA of more than $475 million (2-year average) resulting in high single-digit percentage free-cash flow-to-debt ratios and the ability to improve leverage absent debt financed acquisitions. Since the sale of its newspaper operations two years ago and merging with Young Broadcasting in 2013, the company has successfully executed its strategy to transition into a pure-play broadcaster and has performed in line with its initial revenue and EBITDA plan. Despite challenges related to assimilating the two broadcasters, Moody's believes management will be successful in realizing most of its planned synergies totaling $70 million given Media General's success with Young Broadcasting and given the majority of expected benefits comes from readily achievable elimination of redundant costs and an uplift in retransmission fees. We expect the company to maintain good liquidity leading up to the closing of the LIN merger expected by the end of 2014 given significant cash inflows from political ad demand through the beginning of November.

The stable rating outlook reflects Moody's view that, pro forma for announced transactions and despite weak demand for national advertising, growth in core ad sales will be in the low single digit percentage range over the next 12 months with total revenue increasing by more than 15% on a same store basis in FY2014 due to significant political advertising largely in the second half of the year as well as increasing retransmission fees. The outlook does not incorporate additional debt financed acquisitions that would meaningfully increase leverage ratios. Media General's ratings could be downgraded if revenue or EBITDA deteriorate on a same station basis due to economic weakness or underperformance in one or more key markets, or if debt financed transactions including distribution or additional acquisitions, result in 2-year average debt-to-EBITDA ratios being sustained above 5.50x (including Moody's standard adjustments) post closing of the merger or 2-year average free cash flow-to-debt ratios falling below 5%. Given the potential for additional debt financed acquisitions as the industry consolidates, we are not likely to consider an upgrade of ratings until the company demonstrates a track record for maintaining 2-year average debt-to-EBITDA leverage below 4.50x with minimum 2-year average free cash flow-to-debt ratios in the high single digit percentage range. Liquidity would also need to remain good with comfortable EBITDA cushion to financial covenants and Moody's would need to be assured that management would maintain operating and financial policies that would be consistent with the higher rating.

Media General, headquartered in Richmond, VA, is a leading television broadcaster and is expected to own, operate or service 71 network affiliated stations and associated digital properties across 48 markets covering 24% of U.S. television households, post-closing of the pending merger with LIN and announced transactions. Network affiliations will include 22 CBS stations, 14 NBC, 12 ABC, 8 FOX, 7 CW, and 7 MNT. The company is publicly traded and, as part of the LIN merger, Media General will form a new holding company, New Media General, through which existing Media General shareholders will own roughly 67% of the new holding company with LIN shareholders owning the remaining 33%. Current owners of Media General include Standard General, Oppenheimer, Gabelli, and Highland Capital, with the remainder being widely held. Average 2012 and 2013 revenue pro forma for announced transactions is $1.2 billion.

The principal methodology used in these ratings was 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.

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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.

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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
VP - Senior Credit Officer
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 C 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 B1 CFR to Mercury New Holdco, Inc. ("New Media General"), assigns Ba3 to proposed credit facilities and B3 to new notes; outlook is stable
No Related Data.
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