Gray Television to use all free cash flow for debt repayment in second half of 2008

By Jennifer Lanning Drey

Portland, Ore., May 9 - Gray Television Inc. will use all free cash flow generated in the second half of 2008 to pay down debt, Bob Prather, chief executive officer of Gray, said Friday during the company's first-quarter earnings conference call.

"We will be concentrating on making sure we keep our expenses as tight as we can and looking for more ways to be more efficient and hopefully have a great second half with the Olympics and political [spending] coming up," Prather said.

The company ended the first quarter with cash of $15.3 million and total debt of $922.7 million. Its leverage ratio on a trailing eight-quarter basis was 8.0 times.

"I think we can still make good progress on leverage reduction between now and the end of the year, especially given all that political [spending] is cash in advance and it's slated to go directly to debt reduction," Jim Ryan, chief financial officer of Gray, said during Friday's call.

On June 30, Gray's financial covenant will tighten to allow a maximum leverage ratio of 7.75 times and 7.25 times on Dec. 31.

"We're very focused on that. We know where we need to be and we intend to be there. We are actively working on that in a prudent manner," Ryan said with respect to the June 30 step down.

With the political spending expected in the second half of the year, Gray expects to have an adequate cushion to buffer the Dec. 31 covenant step down.

'09 expected to be better 'off' year

Looking at the larger picture for the company, Ryan said he expects 2009 to be less of a trough year than the company has historically experienced during 'off' years due to reductions in its cost structure made in 2008 and tight capital spending plans for 2009.

Additionally, many of Gray's retransmission agreements will be negotiated at the end of 2008 bringing new revenue in 2009. At the same time operating expense related to analogue transmitters will decrease in February 2009 as the transmitters are turned off with the switch to digital.

"As we've said repeatedly, we want to work [leverage] down. We think we are in a good position at the end of the year to be bringing it down, and '09 will be a better 'off' year than we've had historically," Ryan said.

Gray reported total net revenues of $71.0 million, representing a 2% increase driven by political advertising revenues, internet advertising revenues and productions revenues, which were partially offset by decreased local and national advertising revenues.

Gray is an Atlanta-based television broadcasting company.

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