Feb 27, 2023
Wall Street Wins LBO-Debt Reprieve as FCC Imperils Tegna Deal
(Bloomberg) -- A yearslong battle for the buyout of broadcaster Tegna Inc. has received a new and potentially existential blow from regulators, frustrating would-be buyer Standard General LP and shareholders.
One Wall Street constituency that may welcome the news: Banks left underwater after underwriting big-name leveraged buyouts last year.
On Friday, the Federal Communications Commission put off consideration of Standard General’s $5.4 billion takeover announced in February 2022, saying it risks higher prices for consumers. The delay could kill the deal altogether, spurring as much as a 24% drop in the company’s share price in Monday trading.
A syndicate of banks led by Royal Bank of Canada provided a total of $8.2 billion in debt, including a $500 million revolving credit facility, according to an amended filing from March 2022. Since then, leveraged finance markets all but shut down for buyout deals as the Federal Reserve ramped up rate hikes — forcing banks to fund many high-profile transactions from their own balance sheets.
Markets have recovered somewhat in the new year. Yet investors remain cautious on funding risky LBOs like the Tegna deal, leaving banks stuck with tens of billions of dollars in debt that they haven’t been able to offload.
“The banks are probably breathing a sigh of relief especially those that were committed to the unsecured piece,” said Davis Hebert, senior analyst at CreditSights Inc. “It would’ve been difficult for them to sell or syndicate the unsecured part of the structure.”
Average borrowing costs are still well above maximum interest rate levels banks likely committed to in February 2022 on the Tegna debt, potentially leaving banks on the hook for the difference.
A spokesperson for Standard General declined to comment. A spokesperson for Tegna pointed to the company’s latest earning release and did not comment further. Representatives for RBC did not respond to a request for comment.
In the Feb. 24 order, the FCC sent the year-old transaction for a hearing, imposing what could be a substantial delay. The agency said it was concerned the deal might raise prices for consumers as TV stations boost charges for cable providers and reduce local content.
“This almost certainly moves the date of any final decision well past the current date, May 22, by which the parties are bound to complete the transaction,” Blair Levin, a Washington-based analyst for NSR Research, said in a note Monday.
It’s unclear exactly how much of the debt commitments banks would try to sell to investors if the deal were approved, according to Hebert. Those include around a $3.5 billion senior secured loan as well as a $1.5 billion senior secured bridge loan and a $2.7 billion unsecured bridge loan — which would typically be replaced by permanent financing in the junk bond market — according to the March filing.
In any case, credit markets are pricing Tegna’s long-dated bonds at an effectively zero probability that the takeover will succeed, per Hebert. The company’s 4.625% bonds due March 2028 are down nearly seven cents on the dollar since Friday, standing at 89.12 cents as of 2:27 p.m. New York time, according to Trace data.
Prospects for fighting the FCC’s decision aren’t good, in part because a federal court is unlikely to intervene in an ongoing agency proceeding, Levin said. Still, Standard General on Monday asked the FCC to change course and vote on the stalled purchase.
“A decision delayed is a decision denied,” Standard General’s Soo Kim said in a statement.
The deal includes funding from Apollo Global Management Inc., which will get shares without voting rights to avoid possible antitrust issues arising from its ownership of Cox Media Group, another TV station company.
Spun off from Gannett Co. in 2015, Tegna owns TV stations in Houston, Seattle, Washington and a slew of other cities.
--With assistance from Gowri Gurumurthy, Paula Seligson and Josyana Joshua.
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