Belo Corporation last week announced a reworking of its bank credit facility – moving the expiration out a few years and getting greater financial flexibility. Wells Fargo Securities analyst Marci Ryvicker likes the terms and is predicting that Belo will be returning more capital to shareholders.
“The new credit facility removes restrictions on capital returns,” Ryvicker said in a note to clients. “BLC [Belo’s stock ticker] is now allowed up to $100 million in capital returns in any fiscal year, subject to a leverage restriction of 4.5x (over 4.5x, BLC is allowed up to $50 million/year in capital returns) and a pro forma minimum liquidity of $7 million.” Importantly, the analyst noted, Belo management now has discretion to use the $100 million (half of which can be rolled over to the next year if not used) for either cash dividends or stock buybacks, while the previous loan terms limited dividends to $30 million and no stock buybacks were allowed.
“We expect a dividend increase (long term) and share repurchases (near term),” Ryvicker said in her research note. “BLC is currently paying a $20 million [20 cents per share annually] dividend (~3.3% yield). With more flexible covenants and management’s desire to return more capital to shareholders, we expect a dividend increase at some point in the future (likely on the one-year anniversary, which is April 2012). Nearer term, management can start utilizing its share repurchase authorization, which allows for the repurchase of ~13MM shares remaining under the current authorization,” the analyst said.
“BLC was levered at 3.8x as of 9/30 and generated $45.4 million of free cash flow (our estimate) YTD through 9/30,” she said of the company’s balance sheet.
Belo had resumed quarterly dividend payments in 2011 after suspending them in 2009 during the recession.
