As the number one player in its market position, Moody's Investor Services assigned Atlanta-based Gray Communication Systems' bank debt a Ba3 rating, expecting the company will suffer less than other television stations in the current economic downturn, said Christina Padgett, v.p. senior credit officer at Moody's. This is one of the factors leading to the assignment of a Ba3 rating to the $250 million senior secured credit facilities launched into the market two weeks ago by co-leads Bank of America and First Union, consisting of a $50 million revolver and $200 million term loan.
There are risks, Padgett said, including high leverage, while debt-financed acquisitions are likely to continue. Total debt to EBITDA is high at 6.4 times and is expected to be higher at 7.2 times at year-end. Cash flow coverage is thin, in part due to Gray's significant capital expenditures, which include conversion to digital, and the current, very weak advertising market has had a negative impact on the performance of the company, Padgett noted. "With advertising retrenchment, you want to be top," she stated. The number six performer might be cut, but the number one is more likely to stay, she added. Furthermore, there is quite a lot of asset coverage and future acquisitions will probably not heighten leverage. However, the drag on performance from the economy is expected to continue into next year, Padgett believes.
"Television revenues go up and down every other year depending on elections and the Olympics," explained Padgett. Last year saw the presidential elections, producing a stellar performance. "This year has seen an absence of dotcoms, little advertising and no elections," Padgett commented. Next year will see the Athens Olympics and subsequent increases in advertising at Gray's three NBC stations, she said. Padgett does not believe the time difference between Greece and the U.S. will affect viewing figures, "as it has not been in America since Atlanta, and people still watch it," she said. There is also potential advertising from the local elections, she added. Calls to Gray Communication's CFO Jim Ryan were not returned.