Granite Faces Debt Default

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Facing the pending WB shutown that torpedoed a crucial station deal, Granite Broadcasting has warned that it is running out of cash to service its enormous debt.

Granite CFO Larry Wills alerted investors Tuesday that, without the sale or a big injection of capital, "we will not generate enough liquidity from operations to make our interest payment in June."
While the company has a grace period, a missed interest payment threatens to throw the company into default on its bonds, which would allow investors to demand immediate repayment and ultimately force Granite into Chapter 11.

The company will try to head off the crisis by restructuring its finances. Granite on Monday hired investment bank Houlihan Lokey Howard & Zukin, which specialzes in helping distressed companies restructure their debt and raise new equity.

Many companies accomplish such overhauls without going into bankruptcy court, but either way, Granite’s shareholders face the prospect of their holdings virtually being wiped out.

Granite’s $452 million in debt requires $43 million in annual interest expense. But 2005 operating cash flow totaled just $11.9 million. (Revenues totaled just $86 million.)

In September, AM Media, a unit of Washington-based private equity firm Acon Investments, agreed to pay $180 million for Granite’s WB stations, WDWB Detroit and KBWB San Francisco.

But Acon balked when Time Warner announced it would shut down the WB then team with CBS to create a separate network, The CW.

That left Granite’s WB affiliates in the cold because CBS owns UPN stations in San Francisco and Detroit and will get the CW affiliations there.

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