Ongoing fallout from the credit crisis could mean tough times ahead for media companies carrying heavy debt loads.
Trouble in the credit markets is sparking fresh concerns that highly leveraged players in radio, TV and other advertising-dependent businesses will struggle to keep pace with their debt covenants and payment schedules as the economy sinks further.
Likewise, many companies expecting to favorably refinance big debt packages are in for a rude awakening, Wall Street sources said.
“Those days are over,” one insider said.
“Your cost of borrowing is going to be significantly more than it was a year ago. Some companies are going to have significant problems,” said Harold Vogel, an independent media analyst.
Companies that loaded up on debt late in the leveraged buyout boom – including Tribune Co., Univision Communications and Clear Channel Communications – are drawing the most concern in the current climate.
Tribune is carrying a debt load of more than $12.5 billion as of August, while Univision’s debt load exceeds $10 billion and Clear Channel’s totals $8 billion.
“Those are the companies that investors are keeping a close eye on,” said Bishop Cheen, an analyst with Wachovia Securities, who is predicting a looming shakeout among media companies, hastened by the credit crisis.
However, Cheen said there is broad-based concern about growing debt woes across radio, television and publishing – particularly among middle- to smaller-market companies.
“A lot of companies are going to be in refinancing or amendment discussions with their lenders,” he said. “And too many of them are going to be in full-blown workouts – pre-packaged Chapter 11 bankruptcy filings – or seeking court protection.”
Cheen added that he expects a number of companies may have to give up equity to its lenders to successfully refinance.
Radio is viewed as particularly vulnerable, sources said.
Westwood One, which produces news, talk, traffic and sports programming for radio stations, yesterday said it is in talks with banks and bondholders about refinancing or extending the maturities of $85 million in debt due next year, according to Bloomberg.
Many more are expected.
Cheen recently put CMP-Susquehanna atop the list of suspects of “the most likely candidate to violate bank covenants.”
The ripple effect is also likely to impact companies planning to sell off assets to help pay down debt. They are facing an inhospitable environment for M&A and a potential glut of assets as more companies look for ways to manage and reduce their debt burdens.
Better positioned are the larger media players like Time Warner, Disney, News Corp (which owns The Post) and others that aren’t nearly as highly leveraged, Cheen said.
However, players like Viacom and CBS, both headed by Chairman Sumner Redstone, are generating increased concern, particularly in the wake of Friday’s disclosure that movie theater chain National Amusements, also chaired by Redstone, was forced to sell $400 million of stock in Viacom and CBS to meet debt-covenant agreements.
Citibank yesterday changed its credit opinion on CBS to “deteriorating, high risk.”