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Rating Action:

Moody's assigns B2 CFR to Cox Media Group; outlook stable

02 Dec 2019

New York, December 02, 2019 -- Moody's Investors Service ("Moody's") today assigned a B2 corporate family rating (CFR) and a B2-PD probability of default rating (PDR) to Terrier Media Buyer, Inc., doing business as Cox Media Group (CMG or the company). Concurrently, Moody's assigned a Ba3 rating to the company's senior secured credit facility, which consists of a $325 million revolver (due 2024) and a $1.875 billion term loan (due 2026), and a Caa1 rating to the company's $1.165 billion senior unsecured notes (due 2027). The outlook is stable.

CMG was created when Terrier Media Buyer, Inc. (OpCo), an affiliate of investment funds managed by Apollo Global Management, LLC (Apollo), in connection with the agreement to acquire Cox Enterprises, Inc.'s (Cox, Baa2 stable) television and radio broadcasting businesses as well as Northwest Broadcasting's television business (Northwest) for around $3.9 billion.

Assignments:

..Issuer: Terrier Media Buyer, Inc.

.... Corporate Family Rating, Assigned B2

.... Probability of Default Rating, Assigned B2-PD

....Senior Secured Term Loan, Assigned Ba3 (LGD2)

....Senior Secured Revolving Credit Facility, Assigned Ba3 (LGD2)

....Senior Unsecured Notes, Assigned Caa1 (LGD5)

Outlook Actions:

..Issuer: Terrier Media Buyer, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

The B2 CFR reflects (1) the company's aggressive financial policy as evidenced by elevated leverage (Moody's adjusted debt to 2 year average EBITDA and pro-forma for the transaction) which Moody's expects will remain around 6x in 2020, absent any voluntary debt repayment; (2) the company's high exposure to the TV advertising market which is inherently cyclical and under threat from digital advertising displacement; and (3) execution risk around CMG's standalone business following the carveout of the stations from Cox.

The B2 CFR also reflects (1) CMG's strong market position, with the company operating the #1 or #2 station in around 65% of its markets; (2) the expected growth in retransmission fee revenues, which in 2018 accounted for around 30% of total pro forma revenue; (3) strong free cash flow (FCF) generation (expected to be around $250 million in 2020) supported by low capital spending.

Following completion of the transaction, CMG will own or operate 33 television stations in 20 markets with ten of those markets in the top 65 designated market areas. The company will have some concentration in American Broadcasting Companies, Inc. (ABC) network programming with a large proportion of revenue being generated through ABC affiliated stations. The company reaches roughly 13% (7% including UHF discount) of all US TV households.

The company also owns and operates 54 radio stations across 10 markets, with around 52% of stations located in the top 25 markets. Radio revenue represents around a quarter of total revenue. Some radio and television stations overlap in certain markets, and the company believes it can drive further advertising revenue through cross-marketing and promotion across the two media.

Following the acquisition, retransmission revenue will immediately increase by high double digit percent purely through contractual step-ups of fees paid on existing retransmission agreements. Retransmission revenue is expected to contribute around a third of the company's revenue in the coming 12-18 months. The company's TV stations are in markets where political advertising spending is expected to be high and this will benefit CMG in the 2020 US presidential race, which is expected to generate record political ad spending.

CMG has a good liquidity profile supported by sizeable positive free cash flow (FCF) generation. Moody's forecasts that the company will generate around $250 million in FCF in 2020. On top of this, the company will have a $325 million revolving credit facility which is expected to remain undrawn over the coming year. The terms of the revolver are expected to contain a springing (at 35% utilization) first lien net leverage covenant which will be set at a 35% headroom to the closing leverage level. The company's liquidity profile is also supported by CMG's long-dated maturity profile with very little scheduled annual amortization.

The ratings for the debt instruments reflect the overall probability of default of CMG, reflected in the B2-PD PDR, an average family loss given default (LGD) rate of 50% and the composition of the debt instruments in the capital structure.

The senior secured facilities are rated Ba3, two notches above the CFR given their secured, priority claim on material owned property and assets. The unsecured notes rated Caa1, two notches below the CFR reflect their junior priority in the overall waterfall of claims, behind the senior secured facilities.

Overall social credit risk for CMG is moderate in line with the wider broadcast sector. The key risk for broadcasters lies in evolving demographic and societal trends and potential changes in consumer preferences in particular in the way people choose to consume media. Governance factors that were taken into consideration include the company's private equity ownership and financial policy. At close of the transaction, Moody's expects leverage (Moody's adjusted debt to 2 year average EBITDA) to be above 6x. Given the current consolidation trends in the broadcast market, Moody's believes that as leverage falls to lower levels, the company is likely to engage in further debt financed M&A.

The stable outlook reflects Moody's expectations that CMG's strong free cash flow generation will allow the company to reduce the currently high leverage within the next 12-18 months. The stable outlook also assumes the separation of CMG from Cox will be straightforward and that the standalone business' costs will be proportionate with those of its broadcasting sector peers. The stable outlooks also reflects the strong fundamentals of the US local broadcasting industry with increasing high-margin retransmission fees expected to continue to more than offset advertising decline.

CMG's ratings could be upgraded should the company operate at a leverage (Debt/2 year average EBITDA, Moody's Adjusted) well below 5.25x on a sustained basis.

Ratings could be downgraded should the company's leverage (Debt/2 year average EBITDA, Moody's Adjusted) remain above 6.25x.

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.

Terrier Media Buyer, Inc., doing business as Cox Media Group, is an affiliate of investment funds managed by Apollo Global Management, LLC. Headquartered in Atlanta, Georgia, Cox Media Group is primarily a television broadcasting business with radio assets that complement the company's portfolio of high quality television stations in large, attractive media markets. Cox Media Group owns or operates 33 television stations across 20 markets and 54 radio stations across 10 markets. In 2018, the company reported $1.3 billion in revenue on a pro forma basis.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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
VP-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.
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