Business Context and Reporting Period
This Form 8-K Current Report, dated October 8, 2009, details a material definitive agreement entered into by Nexstar Broadcasting Group, Inc. and its subsidiary, Nexstar Broadcasting, Inc. The filing concerns the amendment of the company's Fourth Amended and Restated Credit Agreement and a related amendment to the credit agreement of Mission Broadcasting, Inc.
Key Financial Metrics and Covenant Changes
The filing does not provide current revenue, profit, cash flow, or liquidity figures. Instead, it outlines significant modifications to financial covenants and interest rate structures within the credit facility:
- Consolidated Total Leverage Ratio: The maximum allowable ratio was increased for the period October 1, 2009, through June 30, 2010, rising from 6.50 to 1.00 to a peak of 10.25 to 1.00. It gradually steps down to 6.00 to 1.00 by April 2011.
- Consolidated Senior Leverage Ratio: The maximum allowable ratio was increased for the period October 1, 2009, through June 30, 2010, rising from 4.50 to 1.00 to a peak of 7.50 to 1.00. It steps down to 4.00 to 1.00 by April 2011.
- Leverage Calculation: The calculation of the Consolidated Total Leverage Ratio was revised to exclude the netting of cash and cash equivalents against total debt.
- Interest Rates: A 1% interest rate floor was added to the Eurodollar Rate. The applicable margin was changed from a pricing grid to a fixed rate: 4% per annum for Eurodollar loans and 3% per annum for Base Rate loans.
Material Changes and Restrictions
The amendment introduces stricter operational and financial constraints compared to the prior agreement:
- Negative Covenants: Exceptions to negative covenants were tightened, reducing the types and amounts of permitted transactions.
- Mandatory Prepayments: The agreement requires annual mandatory prepayments of principal and permanent reductions in revolving credit commitments based on excess cash flow.
- Use of Proceeds: Proceeds from asset sales, equity issuances, or debt issuances are restricted and must generally be used for mandatory prepayments.
- Anti-Cash Hoarding: The company must utilize unrestricted cash and cash equivalent balances in excess of $15 million to repay principal amounts outstanding under the revolving credit facility.
- Cross-Default Provisions: Breaches of warranties or covenants under the Mission Broadcasting credit agreement now constitute an event of default under the Nexstar Credit Agreement.
Outlook and Risks
The filing indicates a strategic shift to accommodate higher leverage levels temporarily while imposing stricter controls on cash management and future borrowing costs. The increase in interest rates and the elimination of the pricing grid suggest a higher cost of capital. The cross-default provisions with Mission Broadcasting increase the risk profile by linking the solvency of the two entities more tightly.
Investor Verification Checklist
- Verify the company's current Consolidated Total and Senior Leverage Ratios against the new, higher thresholds to assess immediate covenant compliance.
- Review the company's unrestricted cash balance to determine if the $15 million threshold triggers mandatory principal repayments.
- Assess the impact of the fixed 4% Eurodollar margin and 1% floor on future interest expense compared to the previous pricing grid.
- Examine the financial health of Mission Broadcasting, Inc., given the new cross-default provisions that could trigger a default for Nexstar.
- Confirm the calculation methodology for "excess cash flow" to understand the magnitude of potential mandatory prepayments in the upcoming fiscal year.