Several new sell side research reports issued this morning. All have a decent tone to them and a favorable review of this past quarter.
Benchmark - favorable "Buy" report and $7 price target
Gabelli - positive spin on #'s and private mkt value of $9.50
Wells Fargo - Positive report, believe guidance for 3rd qtr is conservative and $5-$6 target range... still concerned about JV.
Obviously good for stock this morning.
Actually, I spent over an hour reading TVL SEC filings. Between now and March 2012 the JV is projected to need $5 million in addition to their current cash flow to pay their bills. TVL has already pledged their share $1 million and Comcast the $4 million. The details also say that if NBC was to default that TVL would be on the hook for the difference in what GECC sold the stations for. It appears NY that they will be cash flow positive after March 2012 because of political. I actually think it will be a good time to sell them NY. DaninFW
I see no reason why this deal will unwind soon. 1) You have the new retrans coming in, that eliminates any future shortfall, and increases the value of the JV, 2) CMCSA probably doesn't want to lose the revenue/Ebitda/Cash flow from the JV. If it defaults, CMCSA loses 80%, TVL probably takes the property on by honoring the note. I don't know if CMCSA considers the broadcast stations strategic, but there is nothing yet to indicate that they don't. For the JV to break up you need either CMCSA say "we aren't interesting in collecting free $$$" because the shortfalls will be done soon or you need TVL saying, "We want out, what is it going to cost us for you take over the obligation of the note". If the price is right they probably get out, but their is no need to do so if the terms aren't attractive.
This discussion is almost academic. The market is not worried about this deal. Comcast has a market value of $60 BILLION while little old TVL is just $212 MILLION. This is like comparing a whale to a minnow. However, I have lived too long not to think anything is possible. I still believe this deal will wind down soon. I also think these properties are worth more than you think. An extra $20-30 million a year in retrans alone at a 6 multiple of FCF increases their value by $120-$180 million just for starters. When NXST and MHP announce deals we will see all these properties revalued. It should be interesting. DaninFW
The TVL 10K says upon default the loan will accelerate and all principal and interest will be due. They will go after the assets of TVL first.
Your valuation of the JV is off. The two stations are worth no more than 400 million maybe 350 million.
Your forgetting a very important point, the loan is secured by the assets of the JV, the 2 stations. So Lin would be on the hook for the difference in value between the 2 stations and the loan. The loan is $835 and the stations are worth $600, then they are on the hook for $235.
Under current ownership rules would have to sell one of the stations. My point was that they likely have to buy in the JV properties to avoid triggering the deferred tax liability. Other than letting the JV simply run its course, at some point this is still the next likely case.
I completely agree with the analysis regarding the JV. I don't think either party will be in any rush to do anything. I think with the new retrans revenue you won't see any shortfalls and both parties will start to collect income from the JV. I think TVL could sell the remaining assets if they wanted too, and that was the reason why Comcast wanted to be indemnified against losses from NBC. However, I also believe BLC will probably be a buyer, just not anytime soon.
The concensus EPS for 3rd quarter just dropped a penny today as well. Do you have any insight to the JV and what my actually happen soon with Comcast? Based on the McGraw-Hill article the banks are willing to loan at 6-7 times FCF on broadcasters. That means with TVL at 3 times FCF, someone could offer to buy TVL at $8-9 and get financing for the entire deal. M&A's will pick up soon in this sector. It will be on fire in 2012. I think we will see SBGI really pop on Wednesday when they report because they are way oversold at present. DaninFW
The JV is a bit tricky and it is not as easy as just selling the asset. During the formation of the NBC JV, the structure was chosen so that TVL could defer about $250mm+ of capital gains taxes on the stations (would have been incurred if sold them outright... total JV originally valued around $1.2B+). So any transaction with this JV has to take into account this large potential liability and impact on TVL. I believe the short answer is that if TVL sold their interest in the JV to Comcast or any other 3rd party, the tax liability would be triggered. However, if TVL rolls up the venture themselves they can avoid the tax liability. Only problem is they don't currently have the debt capacity to make the purchase because the leverage on the JV is too great. They could issue more equity at TVL, but that would be tremendously dilutive (hence the overhang on the stock). So IMO, they let the JV with Comcast run its course for next 2+ yrs and allow the retrans revenue stream to kick in (I believe the JV pays no reverse comp through JV term). Combined with a continued US ad recovery, the JV could/should produce ~$100-$125mm in Ebitda in 2-3 yrs. During this time, TVL continues to reduce leverage on its B/S and build capacity to eventually roll up the JV and then potentially sell all of the assets together. I am sure Hicks Muse wants to monetize their investment in TVL sooner and probably has a bunch of smart tax guys working on other structuring solutions to help mitigate/avoid the tax liability in order to allow them to sell the entire TVL station group. One question I have been thinking about is what would happen if TVL sold all of its non-JV station assets and distributed all the proceeds to TVL shareholders, leaving behind the shell TVL company? Would this even be allowed and how would GECC note guaranty be treated?