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TEXT - S&P raises Belo Corp ratings
November 19, 2012 / 3:50 PM / 5 years ago

TEXT - S&P raises Belo Corp ratings

Overview
     -- We expect Dallas-based TV broadcaster Belo Corp. to reduce its 
eight-quarter trailing debt leverage to less than 4x following the redemption 
of its 2013 notes at the end of November.
     -- We are raising our ratings on the company, including the corporate 
credit rating, to 'BB' from 'BB-'.
     -- The stable outlook reflects our expectation that Belo will maintain 
its leverage on a trailing-eight-quarter EBITDA basis below 4x for the next 
two years and maintain its EBITDA margin above 30%, with adequate liquidity 
over the intermediate term. 
 
Rating Action
On Nov. 19, 2012, Standard & Poor's Ratings Services raised its ratings on 
Dallas-based TV broadcaster Belo Corp., including the corporate credit rating, 
to 'BB' from 'BB-'. At the same time, we are maintaining our stable rating 
outlook on the company.

Rationale
The rating action reflects our expectation that Belo will reduce its 
eight-quarter trailing debt leverage to less than 4x with the redemption of 
its 6.75% senior notes at the end of November and will maintain leverage below 
4x over at least the next two years.

The rating reflects Belo's geographic and revenue concentration in Texas, and 
our assumption that the company's TV stations will maintain good audience 
ratings compared with local competitors. Belo has a "satisfactory" business 
risk profile, based on our criteria, because of its strong local market 
positions, diversified network affiliations, and high EBITDA margin. Belo's 
financial risk profile is "significant," in our view, as we expect the company 
to maintain its adjusted debt to latest-eight-quarter EBITDA ratio at less 
than 4x. As of Sept. 30, 2012, leverage, adjusted for pension costs and 
operating leases, was 4.1x, but will decline to about 3.6x with the redemption 
of the 2013 senior notes and modest draw-down of the $200 million revolver.

Belo owns 20 TV stations in 15 large and midsize TV markets, reaching about 
14% of U.S. TV households. The company operates more than one station in six 
of its markets--a structure that generates operating efficiencies. Most of 
Belo's TV stations rank first or second in audience ratings for their local 
news broadcasts. This competitive positioning is important to attracting 
political advertising. However, the company's four TV stations in Texas 
contribute 41% of total revenue, which we regard as a geographic concentration 
risk.

Under our base-case assumptions for 2013, we expect revenue to decline by 4% 
due to the absence of political ad revenue and the Olympics. Core local and 
national ad revenue should grow at a low single-digit percent rate, modestly 
higher than S&P's 1.8% growth forecast for GDP. Assuming low-single-digit 
percentage growth in expenses because of good management of corporate and 
station operating costs, this would result in a mid-teens percent decline in 
EBITDA and the EBITDA margin contracting to around 31%, from 2012's estimated 
35% level.

In the third quarter of 2012, revenue and EBITDA grew 16% and 49%, 
respectively, year over year because of a 5% increase in core ad revenue and 
significantly higher political ad revenue. Growth in EBITDA was attributable 
to political revenues falling to the bottom line as well as the company 
keeping cost growth to under 5%. The EBITDA margin for the 12 months ended 
Sept. 30, 2012, was strong at 35%, over 200 basis points higher than for the 
same period last year.

Lease-adjusted debt to last-12-months' EBITDA was aggressive at 4x as of Sept. 
30, 2012. We expect this ratio to decline to about 3.4x with the redemption of 
the 2013 senior notes and modest draw down of the $200 million revolver to 
fund the redemption and the special dividend. We expect the ratio will 
continue to decline to the low-3x area by 2014, spurred by EBITDA growth. 
Using a debt to average trailing-eight-quarter EBITDA ratio to smooth the 
differences between election and nonelection years, Belo's debt leverage was 
4.1x as of September 30, 2012, down from 5.5x at the end of 2009. Pro forma 
for the redemption and revolver drawdown, we expect this ratio to decline to 
about 3.6x. This is in line with Standard & Poor's financial risk indicative 
ratio of 3x to 4x debt to EBITDA for a significant financial risk profile. We 
expect the average trailing-eight-quarter debt to EBITDA ratio will remain in 
the mid-3x area through 2014.

The company continues to have good discretionary cash flow generating ability. 
EBITDA conversion into discretionary cash flow has averaged above 50% for the 
last two quarters as the company has benefited from strong political 
advertising. We expect discretionary cash flow will decline in 2013 due to 
lower profitability (in a nonelection year), and increased dividends.

Liquidity
Belo's liquidity is "adequate," in our view, and will more than cover its 
needs in the near-to-intermediate term, even with a mid-teen percentage EBITDA 
decline in 2013, a nonelection year. Our view of the company's liquidity 
profile incorporates the following expectations and assumptions:
     -- We expect sources to cover uses by 1.2x or more over the next 12 to 18 
months.
     -- We also expect that net sources would be positive, even with a 30% 
drop in EBITDA.
     -- Belo had a 35% EBITDA cushion against the financial covenants 
governing its revolving credit facility as of June 30, 2012, giving it 
sufficient headroom for a 15% to 20% EBITDA decline without breaching 
covenants. 
     -- Because of Belo's generally good conversion of EBITDA to discretionary 
cash flow, we believe it could absorb high-risk, low-probability shocks with 
limited need for refinancing.
     -- In our opinion, the company has a generally satisfactory standing in 
the credit markets and established relationships with its banks.
     -- In our assessment, management attempts to anticipate setbacks and 
proactively takes actions necessary to ensure continued strong liquidity.
 
Liquidity sources include cash balances of roughly $166 million as of Sept. 
30, 2012 (though much of this will be used to redeem the 2013 notes) and our 
expectation of about $30 million of discretionary cash flow in 2013. Belo 
currently has full borrowing availability under its $200 million revolving 
credit facility due Aug. 15, 2016. The $176 million of senior notes due May 
2013 will be redeemed on Nov. 30, 2012. The $271.4 million of senior notes due 
November 2016 are callable beginning November 2013.

Principal uses of liquidity are annual dividends of about $35 million and 
modest annual capital spending requirements of about $20 million. Belo 
reinstated its shareholder dividend in early 2011, after a nearly two-year 
suspension because of the recession's effect on its cash flow and credit 
measures. Even with the reinstatement of dividends, we expect conversion of 
EBITDA into discretionary cash flow will be satisfactory over the next 12 to 
24 months, at around 25% to 30%.

Recovery analysis
For the complete recovery analysis, please see Standard & Poor's recovery 
report on Belo, published June 11, 2012, on RatingsDirect.

Outlook
The stable rating outlook reflects our expectation that Belo will maintain its 
debt to trailing-eight-quarter EBITDA below 4x, its EBITDA margin above 30%, 
and adequate liquidity for its expected needs, over the intermediate term.

It is unlikely that we would raise the rating over the intermediate term given 
the company's heavy concentration of cash flow from Texas and small scale of 
operations elsewhere. We could consider an upgrade if the company broadens its 
base of operations while preserving good profitability measures, and adopts a 
more conservative financial policy, with leverage of less than 3x on an 
average trailing-eight-quarter EBITDA basis.

Alternatively, we could lower the rating if the company adopts a more 
aggressive financial policy that increases leverage to above 4x on a sustained 
basis through large debt-financed acquisitions, or pursues 
shareholder-favoring initiatives such as large share repurchases and special 
dividends.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- 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

Upgraded
                                        To                 From
Belo Corp.
 Corporate Credit Rating                BB/Stable/--       BB-/Stable/--
 Senior Unsecured                       BB                 BB-
   Recovery Rating                      4                  4
 Subordinated                           BB                 BB-
   Recovery Rating                      3                  3

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