TEXT-S&P may raise Nexstar Broadcasting

Fri Oct 5, 2012 2:23pm EDT

Overview
     -- On July 19, 2012, U.S. broadcaster Nexstar entered into an agreement 
to purchase 12 TV stations owned by Newport Television Holdings for $285 
million, concluding the company's strategic review process.
     -- We are placing our 'B' rating on the company on CreditWatch with 
positive implications. We are also placing all issue-level ratings on 
CreditWatch with positive implications.
     -- The CreditWatch listing reflects our current reassessment of the 
company's future business and financial risk profile, weighing its expanded 
station holdings and its pending refinancing.
 
Rating Action
On Oct. 5, 2012, Standard & Poor's Ratings Services placed its 'B' rating on 
Texas-based TV broadcaster Nexstar Broadcasting Group Inc. on
CreditWatch with positive implications. We also placed all issue-level ratings
on CreditWatch with positive implications.

We expect to withdraw the issue-level ratings on the existing senior secured 
credit facility and the senior subordinated notes when they are ultimately 
repaid through a refinancing.

Rationale
The CreditWatch placement is based on our view that the stations to be 
acquired from Newport Television will improve Nexstar's station portfolio. The 
Newport stations include two top 50 markets and will increase network and 
geographic diversification. We expect that the company will also be able to 
generate cost synergies as some of the acquired stations are in the same 
market or state as current Nexstar stations. The transaction is expected to 
close later this year or early next year.

Our rating on Nexstar reflects the company's position as a midsize TV 
broadcaster focused on smaller markets (which generate smaller pools of ad 
spending), the structural issues that local TV broadcasting faces as a mature 
business, and the vulnerability of Nexstar's ad revenue stream to economic 
downturns and the election cycle. 

Nexstar's second-quarter 2012 results were in line with our expectations. 
Revenue and EBITDA grew by 18% and 35%, respectively, year over year, driven 
largely by strong growth in political ad revenue and retransmission fees. Core 
ad revenue grew by 6.7%, 2.2% on an unaffected same-station basis (excluding 
stations that changed their affiliation), as the largest category--auto 
advertising--rose 16%. The EBITDA margin for the quarter improved to 39% from 
34% as a result of higher retransmission fee revenue. We expect full-year 2012 
revenue and EBITDA growth of around 20% and 40%, respectively, not including 
the results of the Newport stations to be acquired. Lease-adjusted leverage 
was 5.6x as of June 30, 2012. Pro forma for the station acquisition, leverage 
was over 6x. Management has stated that the stations are being acquired for an 
average 2011/2012 broadcast cash flow multiple of approximately 8.3x, 
excluding synergies.

CreditWatch
We expect to resolve the CreditWatch listing once we have completed our 
discussion and analysis of the expanded station group, and have assessed the 
new capital structure, covenant terms, and maturity profile. Our preliminarily 
assumption is minimal incremental leverage through the upcoming refinancing. 
We will also review management's financial policy regarding leverage and 
shareholder returns, following its 2011-2012 exploration of strategic 
alternatives.

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- Standard & Poor's Revises Its Approach To Rating Speculative-Grade 
Credits, May 13, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
 
Ratings List
Ratings Affirmed; CreditWatch Action
                                        To                 From
Nexstar Broadcasting Group Inc.
Nexstar Finance Holdings LLC
Nexstar Finance Holdings Inc.
Nexstar Broadcasting Inc.
 Corporate Credit Rating                B/Watch Pos/--     B/Stable/--

Mission Broadcasting Inc.
 Senior secured credit facilities       BB-/Watch Pos      BB-
   Recovery Rating*                     1
 Senior secured second-lien notes       B/Watch Pos        B/Watch Dev
   Recovery Rating*                     4

Nexstar Broadcasting Inc.
 Senior secured credit facilities       BB-/Watch Pos      BB-
   Recovery Rating*                     1
 Senior secured second-lien             B/Watch Pos        B/Watch Dev
   Recovery Rating                      4
 Subordinated                           CCC+/Watch Pos     CCC+ 
   Recovery Rating                      6

Nexstar Finance LLC
 Subordinated                           CCC+/Watch Pos     CCC+
   Recovery Rating*                     6

*Standard & Poor's does not place its recovery ratings on CreditWatch; 
however, this does not preclude our recovery assessment from potentially