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Slowdown could force station sales

May 28, 2001  •  Post A Comment

Broadcasters seriously strained by ad revenue shortfalls and acquisition debt, which lenders are unwilling to refinance, could end up in bankruptcy or having station fire sales.
That growing sentiment among industry experts is underscored by a report from Merrill Lynch analyst Jessica Reif Cohen that distress sales could abound within six months if advertising doesn’t pick up.
“Syndication of bank loans is getting difficult in the broadcast sector. Bank facilities are being renegotiated at a rapid clip, motivated by trouble with interest-coverage and debt-leverage maintenance tests,” Ms. Cohen wrote in her report last week. “All of this suggests that commercial bankers are waving the yellow flag of caution and slowing the flow of credit availability into the broadcast sector.”
Companies such as Sinclair Broadcast Group, Young Broadcasting, Acme Communications, Granite Broadcasting and Ackerley Communications, which have recently negotiated amendments in their bank facilities, may be required to seek a second round of financing changes if advertising doesn’t rebound during the second half of the year. Banks have been ordering reductions in operating cost and capital spending, Ms. Cohen wrote, and asset sales ordered as a condition of refinancing could abound.
Bank facilities historically require total debt to earnings before interest, taxes, depreciation and amortization at a 6 or 7 times multiple, Ms. Cohen wrote, although she believes TV station groups should hold debt leverage below a 5 times multiple. But Young and Sinclair have estimated debt leverage of between 7 and 8 times estimated 2001 cash flow; LIN Broadcasting and Ackerley are above an 8 times multiple; Acme, Benedek Broadcasting and Granite have more than a 10 times multiple.
With TV station sales multiples drifting down to the 10 times cash flow multiple range, broadcasters prefer to wait for better times to tell. TV station sales generally have been stalled over a widening gap between buyer and seller price expectations, and suffer from increased competition from cable and mandated digital conversion requirements.
Until now, banks have been accommodating, and have renegotiated revolving and term-loan credit at a rapid clip.
However, TV station sales currently are down between 8 percent and 10 percent and broadcast cash flow is down 20 percent to 25 percent with no relief in sight.
However, in the 1991 recession, troubled TV stations sold for as low as 7 times cash flow, Ms. Cohen reported. TV remains a two-tiered marketplace, split between the top 50 markets coveted by network owned-and-operated station groups and low-demand midsize to small markets where current rules disallow the creation of TV duopolies, she said.
In a small TV market, debt leverage ratios approaching or exceeding 8 times provide little equity cushion, compared with private market valuation of 8 times to 11 times, she said.
“Unless the demand for advertising markedly improves in the latter half of 2001, we believe that there may be several workout situations, creating opportunity for consolidators with strong balance sheets,” Ms. Cohen wrote.
Potential well-funded TV station buyers with solid balance sheets who would be spurred by a new round of deregulation include Viacom (CBS), Tribune Co., Disney (ABC), Clear Channel Communications and Hispanic Broadcasting.