E.W. Scripps expects 5x leverage in 2019, then in low fours by 2020

By Devika Patel

Knoxville, Tenn., May 10 – E.W. Scripps Co. expects its leverage to fall to the low fours from just over 5x, which is where the company expects leverage to be following a pending acquisition.

“We’re focused on reducing our net leverage, which will be greatly aided by the strong cash flow we see ahead in 2020,” president and chief executive officer Adam Symson said on the company’s first quarter ended March 31 earnings conference call on Friday.

“[Without any further M&A activity,] we see a path to [leverage being] somewhere in the low fours [by the end of 2020],” executive vice president and chief financial officer Lisa Knutson said on the call.

The company recently negotiated a favorably priced $765 million incremental term loan facility, used to fund a prior acquisition.

“On May 1, in conjunction with the closing of the Cordillera acquisition, we obtained financing for an incremental term loan facility of $765 million,” Knutson said.

“We were extremely pleased with the terms of this financing.

“The loan was issued at 99.5 and bears interest at Libor plus 275 basis points.

“We took advantage of strong demand and favorable pricing to upsize the loan by $240 million.

“The proceeds will be used towards our next Star Tribune acquisition,” she said.

In late 2018, Scripps agreed to buy 15 television stations from Cordillera Communications in a deal valued at $521 million. The transaction closed on May 1.

Due to the term loan upsizing, the company needs to take on less debt for the pending Tribune acquisition.

On March 20, Scripps said it would acquire eight stations from the Nexstar Media Group Inc.-Tribune Media merger divestitures for $580 million.

The company obtained commitments by April 3 for a $625 million term loan B from Morgan Stanley Senior Funding Inc. and Wells Fargo Securities LLC for the Nexstar-Tribune transaction.

Leverage is expected to rise to 5x after the Tribune acquisition.

“At the time Scripps closes our next Star Tribune transaction, we expect our debt to EBITDA ratio to be a little bit more than 5x and, just a reminder, that we’ve said we’d use our balance sheet to take advantage of the opportunity to add reach and durability to improve the financial profile to the company,” Knutson said

“We have demonstrated prudent use of leverage along with the ability to source capital at attractive rates and all of this activity supports our strategies for growing the company and enhancing shareholder value, and, while we’re concentrating on bringing our debt ratio back down, we’re suspending our share repurchase plan,” she said.

The company is not shy about taking debt onto its balance sheet provided it sees a way to de-lever again quickly.

“We’ve long said we would employ the prudent use of our balance sheet when we see the opportunity for growth and sustainability, but always with a clear path to de-lever quickly because this company remains committed to maximizing shareholder value and maintaining financial flexibility,” Symson said

On March 31, cash and cash equivalents totaled $14.4 million while total debt was $696 million. Net debt was $682 million as of March 31.

On April 3, Scripps upsized its seven-year covenant-lite incremental term loan B (Ba3/BB) to $765 million from $525 million and trimmed pricing to Libor plus 275 basis points from talk in the range of Libor plus 300 bps to 325 bps.

Additionally, the original issue discount on the term loan B was revised to 99.5 from 99.

The term loan still has a 0% Libor floor, 101 soft call protection for six months and amortization of 1% per annum.

Wells Fargo Securities LLC, Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding Inc. and SunTrust Robinson Humphrey Inc. were the lead arrangers on the deal.

Proceeds were earmarked for the $521 million acquisition of 15 television stations in 10 markets from Cordillera Communications.

E.W. Scripps is a Cincinnati-based broadcasting and digital media company.

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