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Media General, Inc. Message Board

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  • trade_ster trade_ster Mar 1, 2011 12:42 AM Flag



    Old News..................

    NEW YORK, Feb. 25, 2011--Standard & Poor's Ratings Services today lowered its corporate credit on Richmond, Va.-headquartered Media General Inc. to 'B-' from 'B'. The downgrade reflects our expectation that Media General could face difficulties in maintaining covenant compliance in late 2011 and 2012 due to the absence of meaningful election and Olympic revenues.

    We also lowered our issue-level rating on the company's $300 million senior notes due 2017 to 'B-' (at the same level as the 'B-' corporate credit rating on the company). The recovery rating on the notes remains unchanged at '4', indicating our expectation of average (30% to 50%) recovery for noteholders in the event of a payment default. (For the recovery analysis, see Standard & Poor's recovery report on Media General, to be published on RatingsDirect as soon as possible following the release of this report.)

    "The rating downgrade reflects our expectation that continued secular declines in newspaper ad revenue, and an absence of political and Olympic ad spending will cause Media General's cushion of compliance with tightening covenants to narrow, potentially causing a violation in late 2011 or 2012," explained Standard & Poor's credit analyst Deborah Kinzer.

    The 'B-' rating reflects our expectation that revenue declines in 2011 will cause credit metrics and discretionary cash flow to deteriorate over the intermediate term. The stable outlook reflects our expectation that Media General should have the capacity, albeit limited, to avoid a covenant violation by amending its covenants, cutting costs, or a combination of the two. We view the company's business risk profile as weak because of the structural pressure on the U.S. newspaper industry, TV broadcasting's mature long-term growth prospects, and increased competition for audience and advertisers from traditional and nontraditional media. Media General has a highly leveraged financial risk profile, in our view, because of its high debt leverage and tightening covenants in 2011-2012.

    Media General's businesses include newspaper publishing (48% of 2010 revenue), TV broadcasting (45%), and digital media (6%), located mainly in the Southeastern U.S. The company owns 18 network-affiliated TV stations in small-to-midsize markets, which tend to have lower margins than larger markets. Most stations have either a No. 1 or No. 2 share in news ratings, which can be an important factor in attracting political advertising. Media General's three largest newspaper publications together constitute about 60% of the company's publishing revenue, making the company vulnerable to economic trends in those markets. Media General has reduced employee compensation by 21% in 2009 and another 1% in 2010, largely through reducing its work force, to minimize the effect of structural and cyclical factors on newspaper ad revenue. Nevertheless, this segment has reported four years of revenue declines, and we believe that ongoing cost reductions will need to be executed in order to maintain the viability of the company's print publications. We have a minimal level of confidence that digital revenue growth will support editorial costs over the long term. We expect digital revenues to grow at a high-single- to low-double-digit percentage rate based on the company's increasing digital initiatives.

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