CHICAGO - (Business Wire) Fitch Ratings has published an in-depth analysis of media & entertainment sector liquidity titled 'Liquidity Focus: U.S. Media & Entertainment'. Fitch has stated in previous reports that as Lehman Brothers lending capacity is withdrawn; overlapping exposure of Bank of America/Merrill Lynch and Citigroup/Wachovia are addressed; and as possibly more institutions are merged, the systemic reduction in lending capacity could exacerbate the already tight conditions resulting from the credit crisis. The report released today emphasizes that due to these factors, Fitch's ratings and analysis of corporate liquidity are weighted more heavily toward internal sources of funds: cash holdings and cash generated from operations.
Key conclusions include:
--Liquidity for the media & entertainment sector is generally healthy, with latest 12 months (LTM) free cash flow, as of June 30, 2008, of $18.1 billion and balance-sheet cash of $21.0 billion. Assuming LTM free cash flow is a proxy for future free cash flow, internal liquidity exceeds 2008, 2009 and 2010 maturities of $6.2 billion (includes any commercial paper borrowings), $10.2 billion and $12.4 billion, respectively.
--Not surprisingly, the major conglomerates - including The Walt Disney Company (Disney), News Corporation (News Corp.), Time Warner Inc. (Time Warner) and Viacom Inc. (Viacom) - are currently the best positioned to weather the current financial market conditions, as these companies benefit from strong and stable operating liquidity, diversity of revenues (non-advertising), meaningful amounts of capacity in the form of cash on hand and revolver availability, as well as longer-dated maturities.
--Within the portfolio, there is no significant Lehman Brothers exposure in bank facility commitments. When present, Lehman's commitments were typically lower than 10% of a company's total bank revolver. While it is possible that other banks assume at least a portion of Lehman's commitments, the failure of such would not result in a material credit event for the portfolio.
--There is also limited overlap between Wachovia/Citibank and Bank of America/Merrill Lynch on most bank facilities in Fitch's portfolio. Importantly, the limited instances of overlap occur on facilities that Fitch expects will have sufficient availability when they come due for re-financing.
--The tightening of the commercial paper (CP) market does not cause a material concern for Fitch as the media & entertainment sector is not a major CP issuer. Importantly, the majority of CP balances outstanding in Fitch's portfolio are covered by balance sheet cash at June 30, 2008. In addition, the majority of CP issuers have material availability under their revolving credit facilities with commitments from banks such as Bank of America, JP Morgan, Citibank, Deutsche Bank, Barclays, HSBC, Royal Bank of Scotland, Mizuho and Bank of Tokyo-Mitsubishi.
--Fitch estimates that The McClatchy Company (McClatchy) had very little cushion in its previous 2.75 times (x) interest coverage covenant prior to announcing an amendment to its credit agreement on Sept. 26, 2008. The amendment revised the interest coverage ratio initially down to 2.25x from 2.75x, and leverage to 6.25x from 5x. Both ratios loosen further in 2009, providing additional flexibility at the expense of revolver capacity, pricing and other restrictions (security, dividends, etc.). Tribune Company has a very limited margin of error in relation to its debt covenants. Fitch estimates that (assuming all else equal), less than a 10% drop in EBITDA for Tribune could put them at risk of breaching their guaranteed leverage ratio.
--Although facing both cyclical and secular threats, the media & entertainment industry is characterized by relatively predictable revenue streams and high margins. High free cash flow conversion is supported by limited working-capital swings, low capital expenditure, and (sometimes) low cash taxes. Fitch believes these factors make some media companies relatively attractive borrowers for banks and bondholders, even under more selective market conditions.
Recent topical reports 'Liquidity Focus: U.S. Media & Entertainment'; 'Corporate Liquidity: Bank Agreements and Refinancing Risk'; 'European Media - Liquidity Update'; and 'U.S. Telecom Liquidity Strength Remain Solid' are available on the Fitch web site at www.fitchratings.com under the following headers:
Corporate Finance > Corporates > Special Reports
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Jamie Rizzo, CFA, +1-212-908-0548, New York
Mike Simonton, CFA, +1-312-368-3138, Chicago
Media Relations:
Cindy Stoller, +1-212-908-0526, New York
