As RBR+TVBR reported on May 20, Gray Television has put its wheels in motion on a cash offer for bondholders to put their dollars into notes due in 2026. One day later, S&P Global Ratings assigned issue-level and recovering ratings to the second part of that bondholder initiative — a new tranche F term loan with a 2029 maturity date.
The issue-level rating placed on the new debt, which swaps out “old debt” that was due three years earlier, a “BB-.”
The recovery rating is a “2.”
With a tender offer in play, Gray seeks to benefit from a proposed $1 billion senior secured notes due 2029. As S&P Global Ratings explains, “The ‘2’ recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 85%) recovery for lenders in the event of a payment default.”
As previously reported, Gray plans to use the proceeds from the proposed senior secured notes and its previously proposed $750 million senior secured term loan F, along with a $100 million draw on its revolving credit facility (RCF) and cash on hand, to repay the outstanding borrowings on its $1.15 billion term loan E maturing January 2026 and $700 million 5.875% senior unsecured notes due 2026 and pay associated transaction fees and expenses.
At the same time, S&P Global Ratings lowered its issue-level rating on the company’s previously proposed $750 million senior secured term loan, proposed $680 million revolving credit facility, and existing $1.5 billion (outstanding) senior secured term loan D to ‘BB-‘ from ‘BB’ and revised its recovery rating to ‘2’ from ‘1’.
“Given the higher proposed amount of secured debt in Gray’s capital structure, we now expect reduced recovery prospects (about 85%) for the secured debtholders (previously about 90%),” S&P Global Ratings notes. It adds that its “B+” issuer credit rating and negative outlook on Gray are unchanged because “the proposed transaction is leverage neutral.”
In particular, S&P Global Ratings shares, the negative outlook reflects the company’s current elevated leverage (above 6x), “which provides it with little room for an underperformance over the next couple of quarters.” Therefore, S&P Global Ratings believes Gray is reliant on favorable political revenue and an increase in its core advertising revenue to reduce its leverage over the next year.
S&P Global Ratings values Gray on a going-concern basis using a 6.5x multiple of its projected emergence EBITDA.
