Rating Agencies Weigh In on Belo Spinoff - Broadcasting & Cable

Rating Agencies Weigh In on Belo Spinoff

Standard & Poor’s, Moody’s Investor Service Give Move Thumbs-Down
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Corporate credit-rating agencies Standard & Poor’s and Moody’s Investor Service reacted unfavorably to Belo’s planned spinoff of its newspaper business, separating it from the broadcasting assets.

S&P cut Belo’s credit ratings Monday afternoon, while Moody’s said it could cut the ratings following completion of the spinoff in the first quarter of 2008, which will increase the company’s cost of borrowing money.

Both agencies expressed concern that following the separation of assets into two companies, all of the $1.2 billion in outstanding debt would be held by station operator Belo Corp. while it loses 27% of EBITDA (earnings before interest, taxes, debt and amortization) that was being contributed by the newspaper business. Both S&P and Moody’s expect Belo Corp.’s debt-to-EBITDA ratio to be in the high-four-times range.

S&P slashed the company’s corporate credit and senior unsecured debt ratings from “BBB-” to “BB+,” below the demarcation line between investment-grade and speculative-grade credit quality, otherwise known as “junk.” Furthermore, the rating agency said it was keeping the company on watch for a possible further downgrade.

Moody’s placed Belo’s senior unsecured rating -- currently investment grade at “Baa3” -- on review for possible downgrade. The agency will evaluate the company’s operating and capital structure after the completion of the spinoff, and it may downgrade the rating one or two notches. Moody’s also said it will evaluate the company’s liquidity position, noting that it will need to refinance $350 million debt due in November 2008.

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