Fitch Ratings has affirmed the following ratings on Belo
Corporation (Belo):
-- Issuer Default Rating (IDR) 'BBB-';
-- Senior unsecured debt 'BBB-'.
Fitch has also revised the Rating Outlook to Stable from Positive. Approximately $1.2 billion of outstanding debt is affected by this action.
The ratings continue to be supported by strong local franchises and typically strong free cash flow. Belo has produced stable revenue growth partly due to its smaller market newspapers (Providence, Riverside) benefiting from increased real estate and retail advertising and new metro products. Fitch expects revenue growth of mid-to-high single digits in 2006 due to the Olympics and what is expected to be a strong political year with gubernatorial and/or senate races in seven of the cities Belo is present. A full year of metro edition supplements to the Dallas Morning News, as well as Belo's four ABC stations' broadcast of the 2006 Super Bowl will also assist revenue growth. Margins however should remain pressured due to increased marketing and newsprint costs and increased costs related to the aforementioned metro edition supplements.
The revised Rating Outlook reflects the overall weak industry trends for the primary sectors in which Belo operates (newspaper and broadcast television), as well as credit metrics that Fitch believes are more reflective of the existing 'BBB-' rating.
New technologies and consumer behaviors continue to change the advertising landscape of Belo's sectors. Newspaper circulations continue to decline (Morning News circulation decreased 2.8% over the most recent six-month reporting period) and affiliate broadcast television is increasingly having to deal with new technologies (DVRs), competing news outlets (Internet, mobile), and the fact that the major broadcast networks have begun to sell their content on-demand. Fitch believes these deals signal that affiliates will no longer be the exclusive distributor of networks' content and over the long-term, could impact syndication revenues, as well as local programming as affiliates typically use network prime time shows to promote the local evening news.
The revised Rating Outlook also reflects that credit metrics have not improved to levels which would merit consideration of an upgrade and Fitch believes financial policies will limit meaningful improvement in credit fundamentals over the intermediate term. For the year ended December 31, 2005, leverage has increased to 3.1x from the 2.8x - 2.9x range over the last few years. Increased share repurchases have resulted in increased debt levels of $75 million during the last year while EBITDA margins continue to be pressured when compared to past non-political years. Interest coverage weakened to 4.3x at year end 2005 from 4.7x the previous year. Fitch has previously stated that a key component of ratings improvement would be the result of continued improvements in credit metrics that to date have not materialized. Belo has become increasingly active with share repurchases and despite cash commitments for various capital projects over the next two years and the overall industry pressures, Fitch anticipates share repurchases will remain a primary focus for Belo. Higher debt levels to support share holder friendly initiatives along with continued industry weakness and margin pressures could negatively impact the ratings.
Belo's liquidity is solid and supported by strong free cash flow, which has typically exceeded $140 million since 2002. With material cash outlays expected over the next few years for various capital projects, free cash flow should trend below historical levels over the intermediate term. Belo's liquidity is also supported by a $1 billion, five-year revolving credit facility that expires on May 3, 2010. Fitch estimates borrowings under the facility were approximately $105 million at year end, with an additional $40 million drawn from a $50 million uncommitted facility.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.
-- Issuer Default Rating (IDR) 'BBB-';
-- Senior unsecured debt 'BBB-'.
Fitch has also revised the Rating Outlook to Stable from Positive. Approximately $1.2 billion of outstanding debt is affected by this action.
The ratings continue to be supported by strong local franchises and typically strong free cash flow. Belo has produced stable revenue growth partly due to its smaller market newspapers (Providence, Riverside) benefiting from increased real estate and retail advertising and new metro products. Fitch expects revenue growth of mid-to-high single digits in 2006 due to the Olympics and what is expected to be a strong political year with gubernatorial and/or senate races in seven of the cities Belo is present. A full year of metro edition supplements to the Dallas Morning News, as well as Belo's four ABC stations' broadcast of the 2006 Super Bowl will also assist revenue growth. Margins however should remain pressured due to increased marketing and newsprint costs and increased costs related to the aforementioned metro edition supplements.
The revised Rating Outlook reflects the overall weak industry trends for the primary sectors in which Belo operates (newspaper and broadcast television), as well as credit metrics that Fitch believes are more reflective of the existing 'BBB-' rating.
New technologies and consumer behaviors continue to change the advertising landscape of Belo's sectors. Newspaper circulations continue to decline (Morning News circulation decreased 2.8% over the most recent six-month reporting period) and affiliate broadcast television is increasingly having to deal with new technologies (DVRs), competing news outlets (Internet, mobile), and the fact that the major broadcast networks have begun to sell their content on-demand. Fitch believes these deals signal that affiliates will no longer be the exclusive distributor of networks' content and over the long-term, could impact syndication revenues, as well as local programming as affiliates typically use network prime time shows to promote the local evening news.
The revised Rating Outlook also reflects that credit metrics have not improved to levels which would merit consideration of an upgrade and Fitch believes financial policies will limit meaningful improvement in credit fundamentals over the intermediate term. For the year ended December 31, 2005, leverage has increased to 3.1x from the 2.8x - 2.9x range over the last few years. Increased share repurchases have resulted in increased debt levels of $75 million during the last year while EBITDA margins continue to be pressured when compared to past non-political years. Interest coverage weakened to 4.3x at year end 2005 from 4.7x the previous year. Fitch has previously stated that a key component of ratings improvement would be the result of continued improvements in credit metrics that to date have not materialized. Belo has become increasingly active with share repurchases and despite cash commitments for various capital projects over the next two years and the overall industry pressures, Fitch anticipates share repurchases will remain a primary focus for Belo. Higher debt levels to support share holder friendly initiatives along with continued industry weakness and margin pressures could negatively impact the ratings.
Belo's liquidity is solid and supported by strong free cash flow, which has typically exceeded $140 million since 2002. With material cash outlays expected over the next few years for various capital projects, free cash flow should trend below historical levels over the intermediate term. Belo's liquidity is also supported by a $1 billion, five-year revolving credit facility that expires on May 3, 2010. Fitch estimates borrowings under the facility were approximately $105 million at year end, with an additional $40 million drawn from a $50 million uncommitted facility.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.