Ratings report released on parent company of KHBS 40/29

Fitch, a prominent national ratings agency, recently took at look at the parent company of KHBS/KHOG 40/29 and liked what it saw — with a few exceptions.

Ratings on the debt of Hearst-Argyle Television (HTV) was upgraded to BBB- based on the company’s “historically conservative fiscal policies, strong margins, top network affiliations and the company’s sizeable and geographically diverse portfolio of highly ranked TV stations that reach over 18% of U.S. households.” The BBB- rating suggests a financial outlook that is satisfactory for a medium class company.

Fitch’s report based its upgrade on the 82 percent ownership of Hearst Corp. in HTV. But Fitch was quick to note that Hearst “would take a relatively unsentimental view of its investment in HTV should the broadcasting station business face rapid imminent obsolescence.”

And what does Fitch think about the advertising environment from which HTV depends for revenue?

“So while Fitch believes there is currently an over-supply of ad based media in local markets and that there will be rationalization over the next few years with a disproportionate amount of the pressure falling on newspapers, yellow pages, and lower ranked radio and TV stations, we do believe TV broadcasting is a viable business.”

Other Fitch notes about HTV include:

• “While HTV continues to exhibit high margins typical of TV broadcasting, margins have deteriorated over the years as advertising revenues have suffered and employee costs have outpaced revenue growth.”

• “Year-to-date (YTD) September 2008, total revenue is down only 0.3% due to political advertising but down 10% excluding political. Auto advertising revenue (which typically accounts for 20%-30% of revenue) was down 20% in the third quarter and 17% YTD.”

• “HTV has some significant maturities coming due over the next two years including its $500 million bank facility (due April 2010). Given the lending environment and the terms of recent renegotiations of other issuers, HTV could face a reduction of its $500 million revolver capacity at renewal.”