Fitch Ratings has assigned a 'BB' rating to the Belo Corporation's (Belo) $275 million senior notes due 2016. Additionally, Fitch has affirmed all other ratings of Belo as follows:
--Issuer Default Rating (IDR) at 'BB-';
--Guaranteed bank facility at 'BB+';
--Senior non-guaranteed unsecured notes/bonds at 'B+'.
The Rating Outlook remains Negative.
The 'BB-' IDR and Negative Outlook reflect the continued weak macro-economic environment impacting Belo's local media properties. Fitch expects Belo's Arizona markets (less than 15% of total revenue) to potentially remain pressured over the long-term due to the affiliation profile of the stations and micro-economic environment of the region. Fitch expects Belo's remaining markets to remain weak relative to historical years, however, should be able to maintain strong margins and generate sufficient free cash flow to de-lever the balance sheet at approximately 5% - 10% of debt per year after taking into account pension contributions. The concurrent 18-month extension of the bank facility should give the company sufficient time to completely pay it down by its new maturity of December 2012. The 'BB-' IDR takes into account that the company will depend on the external capital markets to re-finance at least a portion of its $175 million 2013 senior unsecured notes. Fitch expects the company to generate in excess of $50 million of incremental free cash flow (i.e., beyond that used to pay down the bank facility) that could be used for this maturity and that its leverage profile should be under 3 times (x) on a guaranteed basis by the time this maturity is due.
The ratings continue to be supported by Belo's strong local presence in the top-50 U.S. markets and top network affiliations. Fitch continues to believe that there is an overcapacity of premium-priced media outlets in most mid-to-major markets. In Fitch's view the lower rated stations that are unable to sufficiently aggregate the local market audiences will bear a disproportionate share of pressure. Excluding Arizona, Belo maintains strong network affiliations and has a track record of making investments in its news infrastructure, which has positioned it to have either the No.1 or No.2 station in most of its markets. As such, Fitch would expect Belo to compete effectively with the Internet, radio and outdoor by taking market share from print products over the intermediate term. Newspapers in some of Belo's television markets (Seattle, Tucson) have already announced closings and Fitch expects this trend to continue.
Long-term secular risks continue to be present related to time-shifting, however, it is Fitch's expectations that local broadcasters will continue to remain relevant and capture material audiences that local, regional and national spot advertisers will demand. The 'BB-' IDR takes into account Fitch expectations that the broadcast networks could seek reverse compensation.
The company's liquidity is comprised of $3 million of cash and approximately $300 million revolver availability (taking into account this note offering). The 'BB' rating on the 2016 notes reflect the subordinate guarantees it will receive from all material subsidiaries. The guarantees will be subordinate to the guarantees the bank facility receives. Fitch expects the company to successfully complete amendments to its bank facility in order to generate adequate room under its leverage covenant. Without an amendment, Fitch would expect the company to be in breach of its existing leverage covenant by year-end.
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Jamie Rizzo, CFA, +1-212-908-0548
Rolando
Larrondo, +1-212-908-9189
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com
