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Rating Action:

Moody's places TEGNA's Ba1 rating on review for downgrade

07 Sep 2016

New York, September 07, 2016 -- Moody's Investors Service placed TEGNA Inc.'s (TEGNA) Ba1 Corporate Family Rating on review for downgrade following the company's announcement that it plans to dispose of the bulk of its digital assets including Cars.com, a wholly-owned subsidiary, and its 53% ownership in CareerBuilder (consolidated). TEGNA is motivated to part with these assets given weak equity credit and limited operational synergies with its broadcast business. In connection with these transactions, there will be changes in leadership with new CEO's at TEGNA and Cars.com. The rating action considers the loss of growth from Cars.com, the combined EBITDA contribution of both assets, and the benefits of scale and diversification created by these assets which have been a positive rating factor. Without these assets, which represent close to 40% of the company's current revenue mix, the company will be significantly less diversified, much smaller in scale, and likely experience slower top line growth.

TEGNA is planning a tax-free spin-off of Cars.com, scheduled to close in early 2017. The standalone company will be publically traded under the ticker symbol CARS, and recapitalized to fund a one-time cash dividend payable to TEGNA immediately prior to closing. Completion of the spin-off will be subject to certain conditions, including Board approval, tax clearance, and SEC regulatory filings. Following the spin-off, TEGNA will temporarily suspend its share repurchase program and re-evaluate its dividend policy.

In a separate but concurrent process, the company is evaluating strategic alternatives for CareerBuilder, including a possible sale - timing to be determined.

The Probability of Default as well as all instrument level ratings have also been placed under review for downgrade including the Company's Ba1 senior unsecured bank credit facility rating and Ba1 senior unsecured ratings. The Outlook is also was placed under review from Negative.

On Review for Downgrade:

..Issuer: TEGNA Inc.

.... Probability of Default Rating, Placed on Review for Downgrade, currently Ba1-PD

.... Corporate Family Rating, Placed on Review for Downgrade, currently Ba1

....Senior Unsecured Shelf, Placed on Review for Downgrade, currently (P)Ba1

....Senior Unsecured Bank Credit Facility, Placed on Review for Downgrade, currently Ba1 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1 (LGD3)

..Issuer: Belo Corp. (Assumed by TEGNA Inc.)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1 (LGD3)

Outlook Actions:

..Issuer: TEGNA Inc.

....Outlook, Changed To Rating Under Review From Negative

Rating Unchanged:

..Issuer: TEGNA Inc.

....Commercial Paper unchanged at NP

....Speculative Grade Liquidity Rating unchanged at SGL-1

RATINGS RATIONALE

The proposed transactions are credit negative, despite the potential to be leverage neutral if transaction proceeds are substantial and sufficiently allocated to retire enough debt to fully offset the loss of EBITDA. Using the most recent leverage ratio (Moody's adjusted, debt / 2 year average LTM EBITDA) near 4x, and an assumption for the 2 year average EBITDA contribution from the broadcast business only, we estimate the company will need to generate, and use as debt reduction, at least $500 million in proceeds from these transactions to hold leverage constant.

These transactions are likely to benefit shareholders if the transactions are executed at similar market valuations with transaction multiples much greater than the broadcast sector. However, it would also effectively unwind the majority of the company's digital investments, leaving behind an insignificant base of digital assets. This appears to be an aggressive retrench that runs counter to many of its peers who are investing more heavily in digital assets in an effort to capture the shift in ad share. While these assets generate limited operating synergies and Careerbuilder's operating performance has been weak, the strength in Cars.com, the combined EBITDA contribution of both assets, and the benefits of scale and diversification created by these assets has been a positive rating factor. Without these assets, which represent close to 40% of the company's current revenue mix, the company will be significantly less diversified, much smaller in scale, and likely experience slower top line growth.

Our review will mainly focus on the new capital structure of the legacy TEGNA broadcast business, revised fundamental projections, changes to the company's financial policy, the company's digital strategy going forward, and the implications of a less diversified and smaller scale business with a very limited base of high growth digital assets. Assuming the company plans to operate at a smaller scale without the benefits of similar digital assets, leverage would need to fall meaningfully from the current level and key rating factors of the pro forma company would need to be consistent with the current rating level to consider an confirmation of the Ba1 rating.

The principal methodology used in these ratings was Global Broadcast and Advertising Related Industries published in May 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

TEGNA Inc. (formerly known as Gannett Co., Inc.), is a leading broadcaster (56% of reported revenue for LTM June 30, 2016) with significant digital operations (44%). The company's broadcasting operations consist of 46 television stations and represent the largest Big 4 affiliate group in the top 25 markets, reaching roughly one-third of US television households. Digital operations include Cars.com and a 53% interest in CareerBuilder (fully consolidated in financial statements). The company, headquartered in McLean, VA, is publicly traded with a single class structure. Major shareholders include The Vanguard Group, Inc. (9.1%), Blackrock (4.4%), and JPMorgan (3.5%) with remaining shares being widely held. Pro forma for the spin-off of publishing operations, the company reported $3.2 billion of revenue for LTM June 30, 2016.

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 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.

Jason Cuomo
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

No Related Data.
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