Thursday, April 23, 2009

Las Vegas (NAB) in the Rear View Mirror

Following a number of meetings with lenders, investors, and broadcasters during the NAB Show, let me share some thoughts and observations.

While overall attendance was down, the Media Services Group suite was very busy. Despite fewer pre-set appointments than usual, we filled two full days of meetings with broadcast station owners, potential buyers, and members of the financial community. My partners and I now have a much better perspective on marketplace conditions than we did prior to the convention.

At present, the trading market is virtually locked up (with the exception of some small market sellers who are willing to seller finance their deals). We have buyers and we have sellers. But there is no credit to finance the transactions; therefore, there are precious few transactions. The logjam will not break until credit returns to the industry.

With so few transactions, station pricing is a guess at best. We believe that if there was liquidity in the marketplace, stations would change hands in the range of 5x to 8x broadcast cash flow. But this is based on anecdotal evidence; there are really no data points to rely on at present.

Mike Andres of BIA predicted an unprecedented number of broadcast loan defaults this year. I believe that most broadcast loans are either already in default or will be in default by the end of the year (though some loans have been renegotiated with relief extended nine to twelve months).

Media Services Group expects a number of engagements in the coming months assisting borrowers and lenders in the restructuring of many of these problem loans. Look for a lot of debt being converted to equity. There will likely be some liquidations. While this will be a long and painful process, solid broadcast companies should emerge at the end with balance sheets and debt structures favorable to future growth.

We also believe that a number of funds specializing in distressed debt will be negotiating with the banks to buy broadcasters’ paper at deep discounts. It could provide them with a cheap entry into the broadcast space and generate significant returns once the business regains its footing. However, holders of existing equity, beware.

Bottom line: very stormy seas ahead with smooth sailing ahead for those companies able to stay afloat until the storm passes. This will be a much longer and deeper problem than the one many of us suffered in the early 90’s. Now is a great time to assemble your team to help navigate the tempest. It will soon be time for “all hands on deck.”

Those are my thoughts . . . what are yours?

George Reed
Media Services Group