Standard & Poor's credit analyst Heather Goodchild has the job of watching the amount of debt media companies are carrying on their books. On the heels of Tribune's bankruptcy and with the economy expected to stay in the doldrums in 2009, she talks to B&C Business Editor Claire Atkinson about the lessons to be learned from Tribune's failure and who's on the watch list.
The Tribune Co.'s bankruptcy filing last week makes us wonder who else is on the bubble.
We are worried about those rated triple Cs and lower. A triple C speaks to a default within a year, absent extremely favorable business or financial development. There is a decent handful of triple Cs. Sirius XM is another company with a triple-C-plus rating. It has significant debt. If the debt is not addressed, we may lower the rating.
Young Broadcasting is another triple C. What are your concerns there?
They were trying to sell San Francisco station KRON; it had been a drag on their performance because they bought it at a very high price. NBC dropped its affiliation, so for several years [KRON] has been independent and doesn't get the ad rates major affiliates enjoy. [KRON is now a MyNetworkTV affiliate.]
We expect in early 2009 they'll run out of cash. They have some smaller stations; they would have been able to muddle through with the small stations with half the debt they have.
What can other companies learn from the Tribune mess?
In the media sector, it may be too late. One lesson would be not doing leveraged transactions at sky-high leverage; that also assumes asset sales and not constructing a financial profile that assumes a continuing availability of market liquidity and continued ability to sell assets at stable resale multiples.
Many of these companies went into transactions without a sufficient liquidity cushion. Many look at the most recent downturn and think that is the worst that could ever happen.
Isn't it? What is your outlook for media companies in 2009? Does it get any better than this year?
It looks worse, and part of the reason is the advertising demand situation. Advertising is a discretionary spend, and as corporations come under pressure, they look at everything they spend.
What was your takeaway from last week's UBS media conference? Was it simply there's more bad news on the way?
We're conditioned to bad news. We have thick skin. There is no question that people were talking about a tough business outlook and how they're preparing to cope. It certainly seemed like they were listening to investor concerns.