LIN refinances in face of downturn

Jun 11, 2001  •  Post A Comment

LIN Television last week completed a multipronged $1 billion refinancing that will ease its debt payments and covenants over the next several years as it struggles with the economic squeeze that has plagued most broadcasters.
Hicks, Muse, Tate & Furst, a Dallas-based leveraged buyout firm that is 75 percent owner, reiterated its commitment to LIN. Sources say Hicks, which has invested more than $500 million in LIN since 1997, also may be a source for future funding.
The new refinancing was headed by lead banks JPMorgan and Deutsche Banc.
Moody’s Investors Service and Standard & Poor’s maintained their existing ratings on LIN, although they changed their outlook on the company from “stable” to “negative” reflecting the pressures the poor operating market has put on LIN’s financial performance. However, LIN was not in danger of defaulting on any of its debt agreements.
“Ratings on LIN continue to reflect the company’s high financial risk from ongoing debt-financed station acquisition and mature growth prospects of the TV station business,” S&P said in a June 6 statement.
The complex refinancing included raising $300 million in senior notes, $110 million in new bank debt that is part of $160 million in total revolving credit, and $760 million in combined bank loans and bonds for LIN Television and its parent, LIN Holdings. The bank refinancing was locked in at a 1 percent higher interest rate of 7.4 percent.
The company used some of the proceeds to pay off about $225 million in bank debt.
LIN’s refinancing is the latest move made by a major broadcast group to make its debt payments and covenants more comfortable during the advertising downturn, which will likely result in a 10 percent decline in revenues for LIN this year, sources said.
Moody’s said the aggressive acquisition and digital conversion strategy of LIN’s well-regarded management team have always made it heavily leveraged, “increasing its vulnerability to economic cyclicality.”
LIN has spent about $30 million to convert its larger-market TV stations and has five more to go this year.
However, Moody’s said the latest refinancing reduces concerns about LIN’s liquidity, eliminating its bank amortization until 2005 and putting funding in place for mandatory payments due in accrual notes in 2003. LIN’s management will continue to be aggressive in developing “multichannel” strategies for boosting incremental cash flow in an increasingly digital market.
At the end of March, LIN had $994 million in outstanding debt, or a high 8.5 times its earnings before interest, taxes, depreciation and amortization. Dresdner Kleinwort Wasserstein Grantchester estimates LIN’s total capitalization at $1.4 billion.
Both ratings companies said they expect LIN’s financial performance to improve next year with the added support of election- and Olympics-related advertising revenues.
Last week there was increasing evidence that broadcasters of all size are in an economic squeeze. Granite Broadcasting was able to refinance ahead of making more payments to NBC under a controversial affiliation arrangement. Sinclair Broadcast Group recently made an amendment to its existing loan agreements, although it would have preferred to opt for a complete refinancing, sources say.
Young Broadcasting and the Ackerley Group also recently negotiated amendments to their bank facilities. In exchange, banks have been ordering reduced operating costs and capital spending, and asset sales. All of the companies have debt leverage of at least 8 times estimated 2001 cash flow.
Now, smaller broadcasters are beginning to feel the pinch. Last week, Benedek Broadcasting had some of its debt securities downgraded and was said to be out of compliance with some of its bank loan covenants. An estimated $270 in debt securities and about $280 million in bank debt is at risk. Benedek’s situation will become especially acute by Nov. 15 when banks could seek to block the company’s servicing of new notes, industry sources say. Sources say Lambert Broadcasting also could be noncompliant with covenants of its bank loan. Company officials could not be reached for comment.