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Rating Action:

Moody's assigns Ba3 to Nexstar's new revolver and B3 to new unsecured notes

15 Sep 2020

New York, September 15, 2020 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to Nexstar Broadcasting, Inc.'s (Nexstar or the company) incremental $30 million senior secured revolving credit facility (due 2023) and a B3 to Nexstar's proposed senior unsecured notes due 2028. Proceeds from the unsecured notes issuance will be used to redeem Nexstar's 5.625% senior unsecured notes due 2024. Moody's has also assigned a Ba3 rating to Mission Broadcasting, Inc.'s (Mission) new $250 million senior secured revolving credit facility due 2023. At close, Nexstar will use cash on hand to partially pay down its term loan A-4 and Mission will draw on its revolving credit facility and pay off its term loan B-3. Nexstar's B1 corporate family rating (CFR), B1-PD probability of default rating (PDR), and all existing instrument ratings are unaffected by the transaction. The company's SGL-2 speculative grade liquidity (SGL) rating is unchanged. The outlook is stable.

Assignments:

..Issuer: Mission Broadcasting, Inc.

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

..Issuer: Nexstar Broadcasting, Inc.

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

....Senior Unsecured Regular Bond/Debenture, Assigned B3 (LGD5)

RATINGS RATIONALE

Nexstar's B1 CFR is supported by the company's large national scale. Nexstar is the largest US local broadcaster with 196 television stations in 114 markets across 38 US states. The company reaches approximately 39% of U.S. households, inclusive of UHF discount. The company is expected to generate more than half of its net revenue through retransmission fees which are contractual and expected to continue to grow. Nexstar is highly cash generative and Moody's expects that, even with COVID-19's impact on core advertising revenue, Nexstar will generate free cash flow between $400 and $500 million in 2020. Nexstar's B1 CFR is constrained by the company's financial policies that tolerate high leverage; pro-forma for the 2019 Tribune acquisition, Moody's adjusted leverage (on a two year average and including synergies) was around 5.7x in 2019 vs. 4.4x in 2018 (on a standalone basis). Our current expectations are that COVID-19's resulting shock to the US economy will lead to core TV advertising declining by around 25% for the full year. Given broadcast costs are mostly fixed, the expected decline in ad revenue will have a material impact on Nexstar's EBITDA. As a result, we expect the company's leverage to remain elevated at about 5.9x through 2020 (on a two year average basis).

We regard the current COVID-19 pandemic as a social risk under our ESG framework, given the substantial implications for health and safety. The response to the COVID-19 outbreak led to advertising demand -- which is correlated to the economic cycle and consumer confidence -- declining materially in H1 2020.

More positively, during the height of the COVID-19 pandemic and stay at home orders, viewership of local TV increased materially as the concerned audiences sought clear, relevant and trustworthy news from their local broadcasters. While the figures vary by market, Moody's estimates that Nexstar's channels experienced at least a 30% increase in viewership during their news programs in April and May 2020.

Overall social credit risk for the media and broadcasting sector is moderate. The key risk for the sector lies in evolving "Demographic and Societal Trends". Technological advances have favored changes in consumer preferences in particular in the way people consume media. Not only broadcasters had to adapt their business model to the new trend for digitalization by providing TV through high-speed internet, but they also face now competition from new players, including Netflix and Amazon, who compete for audiences.

Nexstar's SGL-2 speculative grade liquidity (SGL) rating is supported by a sizeable cash balance of about $479 million and about $220 million of available capacity under the company's revolving credit facilities, as of June 30, 2020 and pro forma for the company's financing transactions. Nexstar's credit agreement contains a 4.25x first lien net leverage maintenance covenant, and the company's covenant leverage was 3.1x at June 2020. The company is expected to be in compliance with the first lien net leverage covenant over the next 12-18 months. The company generates sizable free cash flow which Moody's expects will be used to reduce debt in the remainder of 2020 and 2021.

The ratings for the debt instruments reflect the overall probability of default of Nexstar, reflected in the B1-PD probability of default rating (PDR), an average family loss given default (LGD) rate of 50% and the priority ranking of the debt instruments in the capital structure. The senior secured facilities are rated Ba3 (LGD3) given their secured, priority claim on material owned property and assets over the unsecured notes, rated B3 (LGD5).

The stable outlook reflects Moody's expectations that despite the disruption caused by the COVID-19, Nexstar will trend towards metrics in line with a B1 rating by 2021 year-end, in particular leverage (Moody's adjusted on a two year basis) below 5.5x. The stable outlook also reflects Moody's expectations that the company will maintain a good liquidity profile in 2020 and beyond, and potentially use any excess cash flows to accelerate Nexstar's deleveraging pace.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

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.

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.

Based in Irving, Texas, Nexstar is the largest US television broadcaster, owning, operating or providing sales and services to 196 television stations in 38 states, across 114 markets covering 39% of US television households (including the UHF discount). The company operates in 38 of the top 50 markets and ranks #1 or #2 in about 80% of its markets. Total pro forma net revenue was about $4.0 billion in FY 2019.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.
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