Moody’s downgrades Gray Television


The debt rating review announced just a few days ago has already been completed. Moody’s Investors Service has indeed downgraded the credit ratings of Gray Television. The ratings reductions impact about $1 billion of debt and Moody’s says the outlook for the company continues to be negative.

Here’s the judgment from Moody’s:

“Moody’s Investors Service downgraded Gray Television Inc.’s ("Gray") Corporate Family Rating (CFR) to B3 from B2, Probability of Default rating (PDR) to Caa1 from B3 and senior secured credit facility ($100 million revolving credit facility and $925 million term loan facility) to B3 from B2. The rating downgrades reflect our heightened concerns that the company will face substantial revenue and cash flow deterioration in 2009 due to the high probability of further weakening in the U.S. economy and its impact on advertising revenue. The depth and the severity of the expected decline exceeds the cyclicality built into the former B2 CFR and Moody’s expects that the revenue decline will likely pressure Gray’s ability to maintain average leverage in the high 7x range over political and non-political years.

Moody’s also downgraded the company’s speculative grade liquidity rating from SGL-3 to SGL-4. The downgrade is driven by the limited cushion under Gray’s credit facility financial leverage maintenance covenant and our belief that Gray’s prospective compliance under the covenant in the latter half of 2009 is less certain due to our expectation of a weak operating environment and significant step downs in the covenant in the fourth quarter of 2008 and 2009.

This concludes Moody’s review of Gray’s ratings for possible downgrade, which began October 16, 2008.

The negative outlook reflects Moody’s concerns regarding Gray’s ability to remain in compliance with financial covenants and the uncertainty with respect to likely creditor action(s) in the event of a technical default. The negative outlook specifically reflects Moody’s belief that any potential remedy of covenant problems could involve a significant step-up in pricing, thereby further pressuring the company’s cash flow and credit metrics.

Moody’s has taken the following rating actions:

Issuer – Gray Television, Inc.:

Corporate Family Rating — Downgraded to B3 from B2

Probability of Default Rating — Downgraded to Caa1 from B3

$100 million revolving credit facility — Downgraded to B3 from B2 (LGD3, 35%)

$925 million term loan facility — Downgraded to B3 from B2 (LGD3, 35%)

Speculative Grade Liquidity Rating — Downgraded to SGL-4 from SGL-3

Outlook — Revised to Negative from Review for possible downgrade

Gray’s B3 CFR reflects continued pressure on the company’s operating performance due to the soft advertising climate, high financial leverage (9.3x TTM debt-to-EBITDA at June 30, 2008 incorporating Moody’s standard adjustments), modest scale and minimal free cash flow relative to debt during the last twelve months. Moody’s concerns regarding the limited room under the company’s financial leverage maintenance covenant also weigh on the rating. Ratings further incorporate the increasing business risk associated with the broadcast television industry as advertising dollars are being spread over a growing number of media outlets.

Gray’s ratings are supported by its diverse geographic footprint and network affiliations, its dominant news franchise that helps capture a significant share of in-market revenue, and its strategy of operating stations in university markets and/or state capitals. Ratings are further supported by the company’s heavier mix of local advertising revenue.

Gray Television, Inc., headquartered in Atlanta, Georgia, is a television broadcaster that owns 36 primary television stations serving 30 mid-sized markets. The company’s total revenues were approximately $307 million for year ending December 31, 2007.”