Whats the prognosis for private equity investors that bought stations in debt-heavy deals?
They are ill prepared to deal with the downturn from a liquidity standpoint. Lower consumer spending from the recent credit crisis could be the final nail in the coffin for the most [debt-heavy] companies. They’ve already squeezed all the efficiencies they can out of their stations. But aren’t those private equity purchases of TV stations solid because loans are multi-year facilities with full repayment scheduled years out? Good question. The reason that the default rate is still low right now is that a lot of those transactions are what we call “covenant light” transactions. They have features like PIK toggles [making interest payments by adding more to debt] where borrowers could delay cash payments for certain classes of securities. In the past, banks could cut them off before it got too bad. Within the next 12 to 24 months, we think you could start seeing defaults ramp up. What’s the outlook for the broadcast networks? We have a “stable” outlook on broadcast networks, though it’s w
