Refilling their piggy banks
GE fattens coffers with $12 billion offeringNEW YORK -- Some smaller media and entertainment companies have started preserving cash amid the continuing credit and financial markets crisis, but most sector biggies seem to be weathering the storm.
One special case is NBC Universal parent General Electric. The conglomerate Wednesday unveiled an offering of at least $12 billion in common stock. Also, Warren Buffett's Berkshire Hathaway agreed to buy $3 billion in preferred stock from GE in a private offering. Both are ways for GE to boost its capital cushion given its big exposure to turbulent financial markets via its finance arm, which accounts for nearly half of its overall revenue.
Buffett seeing value in GE shares, and GE's ability to raise such a large amount of money was seen by some as a bullish development. Bears, though, wondered why GE would need such a wad of cash and noted that Buffet was buying GE shares below market value. Bears won the day and the Dow fell fractionally Wednesday while GE was off 4%.
"It enhances our flexibility and allows us to execute on our liquidity plan even faster," GE CEO Jeff Immelt said about the development. "Second, it gives us the opportunity to play offense in this market should conditions allow."
Otherwise, Wall Street observers mostly mention Tribune Co., newspapers and smaller broadcasting players as facing liquidity and credit covenant challenges in the current environment. Some of the companies heavily rely on credit facilities, and these usually require a certain operating performance.
This week, for example, film exhibitor Carmike Cinemas said it has stopped its quarterly dividend payments, which amounted to $9 million during the past year, and prepaid $10 million in bank debt, allowing it to remain in compliance with all credit facility covenants as of the end of September.
Similarly, small radio group Beasley Broadcast recently reduced its quarterly dividend from 6.25 cents per share to 5 cents to free up additional funds for credit facility repayments.
Meanwhile, Tribune, which went private in one of the most recent leveraged media buyouts, has a "very limited margin of error," according to a report released this week by debt ratings agency Fitch Ratings. Analysts have suggested that the company could look for further asset sales to improve its financial flexibility.
Newspapers are feeling the crunch more than others, with Standard & Poor's saying Wednesday that Gannett could face a debt ratings downgrade.
And the Minneapolis Star-Tribune, owned by private-equity firm Avista, said it skipped a $9 million payment to preserve cash. The company also added that bankruptcy is an option.
Fitch Ratings said that media companies have "generally healthy" liquidity, with diversified media and entertainment companies, such as Disney, Time Warner, News Corp., CBS and Viacom "the best positioned to weather the current financial market conditions" thanks to predictable revenue and free cash flow.
Overall, media and entertainment companies are "attractive borrowers for banks and bondholders, even under more selective market conditions," the Fitch analysts wrote. If needed, reduced capital spending on new initiatives and asset sales could help raise additional funds, they added.
According to Fitch, industry free cash flow for the 12 months ending June 30 amounted to $18.1 billion. Media and entertainment companies also had $21 billion of cash on their balance sheets. This compares with 2008, 2009 and 2010 debt maturities of $6.2 billion, $10.2 billion and $12.4 billion, respectively.
Paul Bond in Los Angeles contributed to this report.