Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (55359)	5/27/2015 7:58:36 AM
From: MNTNH	Respond to of 78747

My day work involves debt and leveraged finance so I can help (prefer investing anytime though): Downgrade due to debt increase for acquisition, almost doubling existing net debt level to $3.3+B. Baa1 downgrade would imply borderline investment grade of Baa2 or BBB. Moodys used fcf of c.$400m levels post acquisition which is odd....that assumes no fcf added from the acquired firm. Checking on TVN shows it alone generates about $100m+ fcf p.a. After adjusting, debt to fcf would go from current 4+x to 6+x post acquisition and possibly no more dividends to the common if the firm is disciplined in capital management. (likely reason for the lows). Also people dont see any synergies between SNI (entertainment) versus TNV (news/ reality). From Moodys Today's rating action is prompted by the potential for a significant rise in debt and leverage levels following TVN's acquisition and a deviation from the company's historical track record of maintaining a modestly leveraged capital structure and saving cash to fund significant portions of acquisition purchase money, which was a key factor supporting SNI's Baa1 rating. Moody's expects that TVN's entire purchase price will be funded with debt and absolute debt levels will increase by around $1.5 billion (including $882 million of debt assumed) upon closing of the transaction. While SNI is required to tender for an additional 13% of TVN's stock, the company has the option to tender for additional shares. Total consideration could rise to $2 billion if the co were to tender for 100% of TVN, all of which would represent incremental debt on SNI. Additionally, the company is highly likely to purchase Cox Communications, Inc's (Baa2) 35% stake in Travel Channel this year, although we estimate that SNI can execute the acquisition of the Travel Channel minority interest with internally generated funds and within credit metrics expected at the "Baa" rating level. From Fitch Fitch acknowledges a level of event risk is present within the company's credit profile as it relates to the potential rationalization of SNI's ownership interests in Television Food Partnership, GP (TVP) and the Travel Channel (TC) partnership. SNI owns a 69% controlling interest in TVP and is the most logical buyer of Tribune Media Co.'s (Tribune) 31% ownership interest in the partnership. There are no formal put or call rights held by either partner. However, SNI holds a first right of refusal. Fitch considers a potential purchase of Tribune's non-controlling interest as an event risk. SNI also owns a 65% controlling interest in Travel Channel, LLC and TCM Sub, LLC while a subsidiary of Cox Communications, Inc. (CCI) retains a non-controlling 35% interest in the joint venture. CCI has the right to put its 35% ownership interest to SNI for fair value at the time the option is exercised. Conversely, SNI has the right to call CCI's ownership interest in the joint venture beginning in August 2015 for fair value at the time the option is exercised.