Granite stock in a tailspin

Soft ad market, hefty payments are pounding Cornwell

By Steve McClellan -- Broadcasting & Cable, 12/18/2000

With a couple more bad days on Wall Street, Granite Broadcasting could find itself trading in penny-stock territory. Last week, Granite's stock was hovering just above $1 per share, still reeling from a one-day 50% drop last month when it disclosed bad news in its third-quarter earnings report.

The company reported a 10% drop in revenue for the quarter, to $32.2 million, with a $5.2 million operating loss vs. $2.5 million in operating income for third quarter 1999. For the first nine months of this year, the company reported a $20 million net loss on a 7% drop in revenue, to $103.1 million.

The company persuaded its bank lenders to waive until March two key financial-performance requirements under the terms of a $260 million revolving credit agreement. But for the waiver, Granite would be in default on the loan, which had about $102 million outstanding.

Compounding Granite's problems are a soft ad market and hefty payments to NBC and to preferred debt holders that start in a little more than a year from now. The payments result from a deal that gives its KNTV San Francisco the NBC affiliation starting Jan. 1, 2002. On that day, the company is supposed to make the first installment, $61 million, on a $362 million fee it agreed to pay NBC for the affiliation.

Granite Chairman Don Cornwell wouldn't comment on the possibility of selling out, but SEC filings say that Granite may sell some assets or raise equity if it has to.

The stock market, "I hope, will respond more positively" once Granite refinances its capital structure, Cornwell said. He declined to say whether he has asked NBC to renegotiate the terms; sources say he has not.

Fact is, Granite may thrive in San Francisco, with a duopoly that includes NBC and The WB affiliations. But others believe Tribune Co. wants Granite for its San Francisco and Detroit stations.