"Previously, On…": Rating Actions In 2024

We took several negative rating actions on U.S. local TV broadcasters in 2024 (see table 1), reflecting increasing credit risks as both consumers and advertisers navigate away from pay-TV. Industrywide, we expect the two primary contributors of local TV broadcasters' revenue--retransmission (the fees local TV stations receive from pay-TV distributors giving them the right to retransmit the station's broadcast content) and core advertising (excluding political)--will modestly decline over the next few years (see "Outlooks Diverge For U.S. Local TV Broadcasters As Industry Faces Secular Challenges," published April 15, 2024, on RatingsDirect).

We believe the industry will become increasingly reliant on political advertising revenue in even years. At the same time, many local TV broadcasters face refinancing upcoming debt maturities at higher interest rates in 2026 and beyond. As a result, we expect EBITDA will gradually decline and cash flow will weaken.

Table 1

"We Interrupt Our Scheduled Programming": Updated Recovery Analyses

At the same time, we updated our recovery analyses over the past several months to reflect lower anticipated recovery prospects given the secular pressures facing the sector. In particular, we lowered the EBITDA multiples we use to derive our estimated enterprise value for these companies upon emergence from a hypothetical bankruptcy (see table 2).

We now ascribe a 5.5x-6.5x EBITDA multiple range to issuers in the sector. A company's EBITDA multiple depends on our view of its business strength, including the geographic reach and quality of its TV station portfolio. These EBITDA multiples are estimated emergence multiples after a hypothetical default and not current market multiples.

Table 2

In the cases of Sinclair and CMG, the reduction in gross enterprise value from lowering the EBITDA multiple resulted in a change to our expected recovery percent for secured debt holders. In the case of Gray, the company increased the percent of secured debt in its capital structure in June 2024 by issuing new secured debt to repurchase $690 million of senior unsecured notes; this led to lower recovery prospects for secured debtholders.

For Nexstar, Gray, and E.W. Scripps, the reduction in gross enterprise value from lowering the EBITDA multiple resulted in a change to our expected recovery percent for unsecured debt holders.

Table 3 shows the recovery estimates for secured and unsecured debtholders relative to the beginning of this year. (We round down our pinpoint calculation of the recovery rate to the nearest 5%.)

Table 3

"Stay Tuned": Our Expectations And Downside Risks

Of the six local TV broadcasters we rate, two have stable outlooks (Nexstar and TEGNA) reflecting stronger leverage and cash flow profiles, which we believe will support debt reduction and refinancing efforts. The remaining four have negative outlooks (Sinclair, Gray, E.W. Scripps, and CMG). These companies currently have elevated leverage and could potentially face refinancing risk if they do not use their excess cash balance and expected free operating cash flow (FOCF) toward debt repayment.

We believe the industry's concentration of debt maturities beginning in 2026 increases refinancing risk given the potential for waning lender demand leading to a shortfall in willing lenders to the sector (see chart 1).

Chart 1

Further potential downgrades to our issuer credit ratings could have negative implications for issue-level ratings (on a company's specific debt instruments) because those ratings are derived from the issuer credit rating (see table 4).

Following a review of all our rated U.S. local TV broadcasters, we don't currently envision making additional material revisions to our estimated company enterprise values. Our estimated enterprise value, used to determine recovery prospects, reflects a discount from current market enterprise values as we expect performance and valuations to decline on the path to default. However, to the extent that declines in retransmission and core advertising revenue materially exceed our current expectations, we could potentially revise our views, which could affect recovery ratings.

We believe further rating changes due to a mix shift in secured versus unsecured debt are unlikely because incremental secured debt capacity is relatively limited among those local TV broadcasters with elevated leverage.

Table 4

Related Research

• Nexstar Media Group Inc., Oct. 8, 2024
• The E.W. Scripps Co. Downgraded To 'B-' From 'B'; Outlook Negative, Sept. 18, 2024
• TEGNA Inc., Sept. 16, 2024
• Gray Television Inc. Downgraded To 'B' On Elevated Leverage, Outlook Negative, Aug. 26, 2024
• Sinclair Inc. Downgraded To 'B' From 'B+' On Expected Secular Pressures; Outlook Negative, Aug. 19, 2024
• CMG Media Corp. Downgraded To 'CCC+' On Elevated Refinancing Risk; Outlook Negative, July 18, 2024
• Credit FAQ: Outlooks Diverge For U.S. Local TV Broadcasters As Industry Faces Secular Challenges, April 15, 2024
• TEGNA Inc. 'BB+' Issuer Credit Rating Affirmed; Thresholds Tightened; Outlook Stable, March 28, 2024
• Gray Television Inc. Outlook Revised To Negative From Stable On Tightened Thresholds, 'B+' Rating Affirmed, March 28, 2024
• The E.W. Scripps Co. Downgraded To 'B' On Elevated Leverage, Outlook Negative, March 7, 2024
• CMG Media Corp. Downgraded To 'B-' On Elevated Leverage, Outlook Negative, Feb. 9, 2024