Financing For Broadcast Deals Said Still Hard to Come By

More than a year after the financial meltdown, the credit markets for broadcast deals have yet to thaw. But some industry officials said they see light at the end of the tunnel as ad sales continue to rebound and stations begin to develop new revenue streams through digital products. For now, lenders appear to be waiting for several consecutive months of ad sales growth before funding station transactions, said Mark Fratrik, vice president of BIA/Kelsey, a media consultancy. “I think banks want to see three to four months, maybe even two quarters worth, of strong or positive overall economic news and strong or positive ad revenue numbers,” he said.

Moody’s gave the sector a vote of confidence Wednesday, upgrading its outlook on TV station debt to positive from stable. Taken together, the rebounding fortunes of some of TV’s biggest advertisers and “the potential for epic political advertising revenue” could lead to substantial revenue gains this year, Moody’s said. Moreover, cost cuts that stations made during the downturn should mean much of revenue growth will translate into earnings, it said.

But debt is still scarce, meaning buyers need to bring more equity to the table to reach deals, Fratrik said. Buyers are out there, said Robert Heymann, head of brokerage Media Services Group’s Chicago office. “There are very strong private companies that did not rely on public debt that are looking around and seeing if they can put deals together that make sense,” Heymann said. “They may have established relationships with a local or regional bank, as opposed to the big national players."

Some large national banks have stopped lending to broadcasters altogether and that makes it harder for deals to raise financing, Heymann said. “Citibank took billions from the government just to remain in business, the last thing they're going to be doing is making loans to troubled industries like broadcasting at this point,” he said. “Those kinds of factors are way beyond the control of a broadcaster or entrepreneur in the broadcast industry."

Lenders are largely writing off the value of broadcasting’s digital revenue opportunities, said Robert Raciti, who advises large private equity firms on media deals. “The guys who are doing debt financing have blinders on and all they are thinking about is cash flow multiples,” Raciti said. “The guys in the debt shops don’t see the light at the end of the tunnel."

But digital media is affecting station values in another way. The advent of online media has diminished the value of a station’s license, Heymann said. “The basis for the inherent value of a license is it’s a scarce resource,” and for years it was the only way to reach viewers or listeners in a given market, he said. “Well the Internet has now taken away that inherent value to a license in that you can now reach listeners or viewers via the Internet without a government license.” That puts pressure on station values overall, he said.

Cumulus Media and private equity firm Crestview will together look for radio investments through a partnership called Cumulus Radio Investors, they said Wednesday. Crestview will lead the group, which would invest up to $500 million in equity for radio deals and seek to raise another $500 million in debt. Cumulus would manage the stations in exchange for a management fee.