TEGNA Inc. Rating Lowered To 'BB-' On Expected Pressures Stemming From The Coronavirus; Outlook Negative

  • The spread of coronavirus in the U.S. has already reduced consumer spending, and we expect it to hurt advertising spending over the next year.
  • We are lowering our issuer credit rating on TEGNA Inc. to 'BB-' from 'BB' because we now expect declines in advertising will prevent the company from reducing leverage below our 4.5x downgrade threshold in 2020.
  • The negative outlook reflects the uncertainty around the extent of the coronavirus' negative impact on TEGNA's performance and the potential that leverage could increase above 5.5x over the next year.
NEW YORK (S&P Global Ratings) March 24, 2020—S&P Global Ratings today took the rating actions listed above.
TEGNA Inc.'s leverage is currently elevated.   We estimate that TEGNA's leverage was about 5x at the end of 2019 (pro forma for $1.4 billion of television station acquisitions that were funded with debt), which is above our 4.5x downgrade threshold for the 'BB' rating. We previously expected TEGNA would reduce leverage to about 4.3x in 2020 (due to growth in retransmission and political advertising revenue), which provided little room for underperformance relative to our base-case forecast. We now expect declines in advertising revenue stemming from the impact of the coronavirus will keep leverage above 4.5x in 2020.
The negative outlook reflects the uncertainty around the extent of the coronavirus' impact on TEGNA's performance and the potential that leverage could increase above 5.5x over the next year. While our expectations for retransmission and political advertising revenue remain unchanged, we expect advertising revenue will decline materially over the next year due to the spread of the virus.
We could lower the rating if TEGNA's leverage increases above 5.5x over the next year. This could occur if a severe advertising recession reduces the company's advertising revenue and EBITDA declines by about 10% in 2020. Covenant compliance is tight, even before considering the impact from the pandemic, such that pressure on operating performance could result in a breach to TEGNA's financial maintenance covenant. This would require TEGNA to amend its covenants to increase headroom, as it has done in the past.
We could revise the outlook to stable if the pandemic has a limited effect on TEGNA's business such that we expect its leverage to be comfortably below 5.5x over the next year. We believe this would likely entail a moderate advertising recession followed by a healthy recovery in television advertising toward the end of 2020 and beginning of 2021, such that any near-term decline in EBITDA returns to 2019 levels.
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