Nexstar Media Group Inc (NXST) 2010 Q1 法說會逐字稿

Good day, and welcome to Nexstar Broadcasting Group's 2010 first quarter conference call. Today's call is being recorded.

All statements and comments made by Management during this conference, other than statements of historical fact, may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933 and Section 21A of the Securities and Exchange Act 1934. The Company's future financial conditions and results of operations, as well as forward looking statements, are subject to change. The forward looking statements and comments made during the conference call are made only as of the date of today's conference call.

Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today's news announcement. The Company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances. At this time I'd like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Thank you, Karen. Good morning, everyone. Thank you all for joining us to review Nexstar's 2010 first quarter operating results. Tom Carter is with me this morning here in the room. After our brief remarks, we will open the floor to Q& A.

2010 is off to an excellent for Nexstar with another strong quarter led by robust growth with all of our financial and operating metrics. Nexstar's solid first quarter 2010 results confirm our view that the initial increases in core advertising activity generated in late 2009 are gaining momentum in 2010. In addition, Nexstar's commitments to leveraging our local platform by building out on our quadruple play of revenue drivers continues to serve us well and our record first quarter net revenue reflects solid growth from all of our revenue sources. Furthermore we believe that our 23.7% rise in first quarter net revenue will be a high-water mark in the industry, and is even more impressive as we also significantly exceeded industry revenue performance in the year-ago period.

In addition to record first quarter revenue, we also posted record broadcast cash flow, record EBITDA and record free cash flow. These results highlight growing margins and the significant operating leverage in our diversified business model, as well as the initiatives we undertook throughout 2009 to position Nexstar to benefit and the strengthening economy and improving ad environment.

Tom and his team have been very active in the year-to-date period with further success in reengineering our balance sheet to improve liquidity, extend our bank maturities and eliminate pricing increases on certain pieces of our capital structure, and Tom will review that activity in just a moment.

Nexstar generated total first quarter net revenue of $68.6 million, a 23.7% rise from the year-ago period with the increase being broad-based, with a strong growth in local, national, political, retrans, eMEDIA and revenues from our management contract. During the first quarter we generated 17.6% year- over-year increase in aggregate local and national revenue, and a 23.1% rise in gross ad revenue, which will be inclusive of our political advertising.

Speaking to the strength of core television operations and our market positions, Nexstar generated a 16.2% year-over-year increase on local spot revenue and a 21.8% rise on national spot revenue, as well as 40.9% increase in total revenues derived from retransmission consent, eMEDIA and management fees. In total, the high-margin revenue from retrans, eMEDIA and management services increased to $10.8 million in the first quarter and we will see continued growth from all of these sources as we move throughout 2010.

Our continued focus on expense management and achieving further operating efficiencies resulted in record 2010 first quarter operating income of $9.8 million and free cash flow of $8.9 million, compared to negative free cash flow in the year-ago period attributal to the loss from operations related to expenses incurred for the exchange offer completed in the first quarter of 2009.

Reflected in the success of our diversification efforts, we've successfully transitioned the traditional television revenue model from one-legged, ad-supported, distribution-dependant entity into a multi-tiered business model that uses our core on-air television advertising operations as a foundation.

With most of our peers having now reported, we believe our first quarter results demonstrates once again our pursuit of new revenue opportunities and the expansion of our local platform to include revenue drivers in traditional media subscription-based revenue, eMEDIA and station management services agreement as a path to near- and long-term growth. Our focus on building brands by leveraging localism is embraced throughout Nexstar, and it will be reflected in our results throughout the year. With the the ad environment improving, and auto and many other key advertising categories increasing, upcoming quarters will benefit from higher levels of overall ad spending, also from significant political revenue and continued growth of total revenue derived from retrans, eMEDIA and management agreements.

Let me quickly review some of the other quarterly and recent highlights, after which Tom will give a deeper dive into our financials. First quarter retransmission consent revenues were $7.4 million, that's a quarterly record and exceeded our 2009 Q1 levels of $5.3 million by 39.9%. Q1 eMEDIA revenue came in $3.0 million, surpassing last year's first quarter by 25.9% and marking the 14th consecutive quarter of growth for Nexstar's community web portal strategy. In the first quarter we recorded $0.5 million of management fee revenue from our services agreement to manage the Four Points Media Group. Our management agreement began at the end of the first quarter of 2009 and is a fixed-fee of $2 million, as we've reported, and we earn performance compensation as we generate broadcast cash-flow for this station group above a specified threshold. These performance comp revenues will be recognized in Q4 of this year, just as they were in Q4 of 2009.

Moving on now to new to television local direct billing, Nexstar generated $3.6 million in new local direct advertising revenue in Q1 of 2010, which represented 8.6% of our local billing, and we improved this metric by 23% relative of what we did in Q1 of 2009. The healthier economy, increased project selling, focused individual sales efforts across our station portfolio contributed to the 23.1% rise in gross local, national and political revenue during the quarter. Political was helped from primaries in Texas and Illinois, and issue and advocacy spending which collectively drove the eight-fold revenue increase to $3.2 million in Q1, and we have a high expectation for political spending on our stations throughout 2010.

Looking briefly at some category data, Nexstar generated 13% overall increase in billings from our top 10 advertising categories in the first quarter of 2010, led by a 40% year-over-year increase in automotive ads spend, with gains across the board from local dealers and corporate and dealer group spending. As a category, automotive ad spend represented 19 .5% of our core ad spend, the highest level in the past five quarters. This upswing is extremely broad-based, as it includes domestic and foreign marks, as well as local dealers and dealer groups. Based on the trend we've experienced and our Q2 basings, we see further upside as we head toward the second half of the year, and what we think the demand, along with the expected political bookings, will have an accumulative affect of a positive impact on our inventory and also our rates.

Broadcast cash flow totaled $25.6 million in Q1, that's an 80.2% increase over the first quarter of 2009. Our adjusted EBITDA came in at $20.9 million, that's 180% growth over Q1 of 2009. Free cash flow was $8.9 million, which compared to negative free cash flow in first quarter of 2009. As I said earlier, that was impacted by costs during the period related to our exchange offer.

In other business, Nexstar's joint sales and shared services agreements with Sinclair for WYZZ in Peoria, Illinois, and in WUHF-TV in Rochester, New York, have been extended through December 31 of 2013. We also have reached a new multi-year affiliation agreement for our Johnstown-Altoona CBS affiliate, WTAJ-TV, which is the top-rated station in that market.

Let me now turn the call over to Tom to provide further detail on our financials, after which I'll come back and talk briefly about our outlook going forward. Tom?

Thanks Perry. Good morning, everybody. I'll review some of the key Q1 line items on the Company's income statement and balance sheet. First to recap some key year-over-year categories.

As Perry mentioned, net revenues were up 23.7% to $68.6 million for Q1 of 2010. Broadcast cash flow was up 80.2% to $25.6 million in Q1 of 2010, compared to $14.2 million in Q1 of 2009. Adjusted EBITDA was $20.9 million in Q1 of 2010 versus the $7 .5 million in Q1 of 2009. Gross local revenues were up 16.2% to $41.7 million, gross national revenues were up 21.8% to $14.7 million, compared to $12.1 million the prior year. Core revenue for us, which is local and national, was up 17.6% to $56.4 million. Political revenue was up and returned up from $400,000 in Q1 of 2009 to $3.2 million in Q1 of 2010. Retrans revenues, as Perry mentioned, were up almost 40% to $7.4 million and eMEDIA revenues were up a healthy 26% to $3 million for the quarter.

In 2010's first quarter, the Company generated $9.8 million of income from operations, compared with the operating loss of $1.3 million in the year-ago period. The 2009 results were impacted by softer Q1 2009 revenue and almost $2.9 million of expenses, which were reflected in corporate expenses related to the exchange offer completed during that quarter.

Overall, Nexstar's first quarter of 2010 corporate expenses total $4.8 million, which included approximately $200,000 in additional expenses related to the 2009 bank amendment process in the collateralization that accompanied that. And this 2010 corporate expense for the first quarter compares with $6.8 million in the year-ago period, inclusive of the aforementioned $2.9 million exchange offer cost. Corporate overhead for the first quarter of 2010 and 2009 included approximately $300,000 and $400,000, respectively, of noncash employee stock option expense.

Direct station and sales and SG&A expense totaled $35.9 million during Q1 of 2010, compared with $34 .5 million in the same period last year. Of the $1.4 million period-to-period increase, approximately $1.1 million was associated with sales commissions and expenses related to the significantly higher levels of revenue.

As Perry mentioned at the outset of the call, we've been very active in addressing the balance sheet to improve liquidity, extend bank maturities and largely eliminate pricing increases on portions of our capital structure. During the first quarter of 2010, Nexstar purchased approximately $1 million of outstanding 13% senior-subordinated payment in kind notes due 2010 at a discount. Following this, in April of 2010, the Company completed $325 million principal offering of 8 7/8% senior-secured notes, due 2017. This, financing along with the subsequent bank financing, both closed on April 19.

The Company, during this refinancing period with it banks, changed the bank facility and, among other things, extended the maturities, reduced the aggregate borrowing capacity, amended the financial covenants and provided additional flexibility. Under the terms of the new credit agreement, the principal amount available under the revolving facility was reduced to $75 million, with $65 million allocated to Nexstar and $10 million allocated to Mission. The Term Loan B was reduced to $100 million with $61 million allocated Nexstar and $39 million to Mission. The credit agreement's amendments also permitted additional Term Loan B facilities up to aggregate of $100 million, permit Nexstar and Mission under certain circumstances to incur indebtedness and make restricted payments, in each case, in part, to repurchase or extinguish existing liabilities. The new credit agreement eliminates the requirement that Nexstar broadcasting maintain a consolidated minimum interest coverage ratio and a consolidated maximum senior leverage ratio, and institutes a requirement to maintain a consolidated maximum first lien indebted ratio -- indebtedness ratio. Based on the aggregate first lien indebtedness maintained by Nexstar and Missions and changes the maximum and minimum covenant levels associated with each ratio. Additionally, the credit agreement removes mandatory quarterly principal payments based on a computation of excess cash-flow for the preceding 12 months. We used proceeds from the April 2010 note offerings, together with borrowings under the amended senior credit facilities and cash on hand, and completed a tender offer to repurchase approximately $34.3 million of the outstanding 13% notes. This represented approximately 82.5% of the outstanding aggregate amount principal of these notes. Approximately $7.3 million of the notes remaining outstanding currently.

Now we'll move on to some of the balance sheet and pro forma balance sheet for the recent offerings. At March 31 of 2010, on the Company's balance sheet was bank debt totaling $387.3 million, which was comprised $318 million outstanding under the term loans and $69 million outstanding under the revolver. I want to note here that we did reduce borrowings under the credit facilities by $11.4 million during Q1 of 2010. This 7% senior sub notes obviously are in two traunches, there's $47 million outstanding under the cash pay portion, and $134.7 million outstanding under the pick portion. And just as a reminder, that security is payment in kind through January 15, 2011. At March 31 of 2010, we had $50 million outstanding of the 11 3/8% senior sub debt and at that time we had -- I'm sorry $41.6 million outstanding under 13% subnotes, and again, as a reminder, those went cash pay on January 15 of 2010. Total debt on the balance sheet as of March 31, 2010 was $660.6 million.

On a pro forma basis, Nexstar's outstanding debt of March 31, 2010, consisted of the following, and again, this is pro forma for the offerings that occurred and closed on April 19. First lien debt, $15.7 million outstanding on the revolver, and $100 million outstanding under the term loan. Second lien debt consisted of the 8 7/8% notes, again $325 million semi-annual cash pay interest, maturity of 2017.

Additionally there were the 7% sub-debt, the $47 million cash pay traunch, and the $134.7 million pick traunch. On the 11 3/8% notes, the aforementioned $50 million, and as I mentioned earlier, the 13% senior sub-debt notes were reduced to $7.3 million outstanding. All of this resulted in total debt of $167 -- I'm sorry, $679.7 million. We had $11.2 million in cash on the balance sheet at quarter-end. Pro forma leverage at March 31, 2010, was $8.53 versus the new covenant of $10.25 and first lien leverage was $1.45 versus the covenant of $2.5 Overall, we remain focus on the balance sheet and further actions that can enhance shareholder value, and we plan to allocate free cash flow in 2010 to debt reduction.

Total interest expense for the first quarter was $12 million compared to $9.9 million for the same period in 2009. Cash interest for the first quarter was $8.5 million compared to $8.2 million in the year-ago period. Nexstar's Q1 Cap EX of $3.8 million compares with $3.2 million in the first quarter of last year as we completed the remaining project in Joplin for our new facility there. We expect our CapEx run rate to decline on a quarterly basis through the end of 2010. That concludes the financial review for the call and now I'll turn it back over Perry for additional remarks before Q&A.

Thanks a lot, Tom. Given that we ended the first quarter well ahead out of our plan and Q2 is showing good pacing, we . have a high level of optimism in 2010 being a record year for Nexstar as we continue to benefit from growth in overall ad spend, including the strong resurgence in the automotive category, as well as significant political revenue and continued growth of total revenue from retrans agreement from eMEDIA and from our management services agreements. And with core and net revenue in 2010 to date pacing ahead of our internal plan, we expect to generate record free cash flow in 2010, as well.

Our first quarter results demonstrate that Nexstar is reaping the benefits of leveraging our core television broadcasting operations into a multi-tiered model of high-margin revenue streams. With all of the options available for consumers these days, television viewing remains at record levels across all demographic groups and advertisers recognize that broadcast television is the most effective medium for driving awareness and building both traffic and brands.

Given that now over 74% of our core revenue is derived from local advertisers, Nexstar is and always has been very focused on building brands for local advertisers by leveraging our localism. We have developed direct relationships with the owners and managers of these businesses in our markets where we operate and we incentivize our local sales teams substantially based on their ability to develop these new advertiser relationships.

Over the long-term, we've been very successful in leveraging the strength of our news programming in the high levels of political advertising in both even and odd years. The already high 2010 budgets for state and local candidacy spending is being complimented by a broad range of advocacy spending and we are also benefiting from the current high levels of partisanship. Combine these factors with the Supreme Court's campaign finance ruling and the contested local and statewide races in Pennsylvania, New York, Indiana, Illinois, Arkansas, Texas, it's clear that 2010 will be among our best, if not the best year ever for political revenue for our Company.

On the distribution front, we have recent second-round deals with approximately 200 cable DVS and Telco distribution partners and our retransmission revenues will rise again in 2010 by a substantial double-digit amount as we have escalators in our contracts on anniversary dates. We have about a dozen agreements that I will be renegotiating near the end of this year, which will complete the second-cycle renewals, and looking forward, we'll have the full-year benefit of all those new agreements and their escalators and their new subscriber rates for 2011, so this will continue to be a growing revenue stream for Nexstar.

On the management fee revenue line, we've brought excellent operational efficiency improvements of the seven Four Points stations and a tailwind provided by the strengthened ad environment is bolstering the already improving results. In total, this new revenue streamed delivered about $1.8 million in revenue in 2009 to the Company, and we will benefit in 2010 from a full year of the agreement being in forced and from the expected overall improvements in the operating results for the seven stations, which will entitle us to earn additional performance compensation.

The eMEDIA operations continue to record year over year double digit revenue gains as we have successfully leveraged our local content and our local business relationships of our television stations to build our unique local online portal business. Revenue from Nexstar's eMEDIA operations is proving to be recurring, sustainable and profitable and we are pursuing several areas to continue further growth. For example, early in 2010, we announced an agreement that brings Nexstar's market-leading local content from our 33 local community web portals to mobile users. Since entering into this agreement, we've generated impressive levels of new sponsorship revenue for our mobile service.

Finally, I will once again note that Nexstar's annual capital expenditures peaked at approximately $31 million in 2009, primarily based on extremely high levels of spending for mandated digital conversions that we completed in early 2009. Capital expenditures were reduced to $19 million last year as we completed those conversion investments and our CapEx will approximate $12 million this year. With the revenue increases we are generating and the leverage inherited operating model, Nexstar is poised to generate record free cash flow in 2010, which will be applied to debt reduction and new value-creating initiatives. As a reference point, our previous record for free cash flow was $28 million in 2007, and we generated $8.9 million in free cash flow in the first quarter of this year, our seasonally weakest quarter, so we don't think that a record is a stretch. With that, I'll turn the call back over to Karen, our Operator, to begin the Q& A so we can address your specific areas of interest.

(Operator Instructions).

And our first question comes from the line of Steven Wise of Banc of America.

Good morning everyone. Two questions if I could. The first, Perry, your tone certainly sounds pretty encouraging as we enter into 2Q, but given the events of the last week, I have to ask have you seen any change in tone given what we saw in the stock market in Europe over the very recent week or so? I wasn't sure if you mentioned pacings for 2Q.

My second question basically relates to I've read there's been some renewed rumblings of the ad tax coming in certain states, maybe, I saw Pennsylvania cited some variation in New York and maybe half of other states have it in various form of review. I was wondering if you had any comments or colour you could ad on that? Thank you.

Sure, actually we wrote up our pacings last week. We, every Friday, calibrate our projection for the current quarter and we wrote up our projection for Q2. Without giving specific guidance, our core revenue pacing is in the high-teens right now. Our political revenue on the books for the second quarter is already over our budget amount and we are seeing substantial activity now, not only from candidate races but from issue advertising that has started to come on to the floor. We wrote in excess of $1.4 million in political just last week for the second quarter.

And then on the ad tax question?

We -- the state associations are all already all over this and are lobbying obviously with states strapped and stretched to find dollars that there is the prospect that this will be discussed. We don't think any action in any state, as far as we can tell, that we operate in is imminent. But the Texas Association of Broadcasters, the Pennsylvania Association of Broadcasters, of which we have general managers and corporate folks on the board, same in New York State, same in Illinois and Missouri. And the other states we operate in are taking a proactive approach to attempt to swat this down for about the tenth time. I think that we will continue to be successful in that regard.

Okay. Thank you.

Our next question comes from the line of Jim Boyle from Gilford.

Good morning. Perry, can you tell us how the Q1 revenue growth was on a month-by-month trend. Did it build throughout the quarter or was it just strong throughout the quarter?

February was the strongest month, and that's based primarily on Olympic and Super Bowl both falling in the month. But the second best month in terms of increases over the prior year was March and not January, so I think that we -- and as we look into the second quarter, those pacings have continued at March-like increases over the prior year, so we think that the revenue growth in our core ad spend is sustainable, certainly throughout the first half of the year and into the second half of the year, as well. And obviously the pleasant surprise is that political is above our expectations in the second quarter already and we think will continue to grow, as we're only sitting here in the early stages of May.

And, Jim, this is Tom, just one other quick point on political. I went back and looked, political in Q1 of 2008 was $2.1 million and we're at $3.2 million in Q1 of 2010. So just kind of back to the most recent even year, we're seeing substantial increases.

Perry, many of your TV station group peers have mentioned that their Q2 either forecast guidance, book-ins or pace-ins today were as good or better than Q1. Any reason why you'd be different from your peers?

Well, I think we reported core revenue growth in the very high-teens for Q1. Obviously there was Olympic and Super Bowl, but we have guided generally to core revenue growth of high-teens for Q2, as well. So I think you can count us among the folks that feel that the core revenue growth is sustainable in Q2.

Okay. And on political, as you mentioned, Tom, Q1 was rather remarkable being up 600% year-on-year and in compared to 2008. In 2008 you had $33 million for the full year. Is it likely you might beat that by at least 10%, given what's gone on to date, the Supreme Court ruling and the issue advertisers?

Well, again, we're up about 50% in Q1 of 2010 over 2008. We don't think we're going to be up 50% for the entire year. But I think we've been pretty clear we believe we'll beat the 2008 total number. What we've seen to date hasn't changed our mind on that.

So you'll beat it by a considerable amount, but you don't want to throw a range at it.

Not yet. Again, we're kind of in the third inning of this game and as we all know, the game is played in the eight weeks prior to the election in November. So do we feel good about it? Yes. Are we ahead of budget and expectations, and by the way the expectations were pretty peppy? Yes. But we're not ready to declare victory yet.

But you're in the third inning and a lot of your batters have already hit homers.

I would say, Jim, the number that you threw out is in our forecast range, and I would also say it's not at the upper-end of our forecast range.

Okay. Your adjusted EBITDA margin that was about 31.4% compared to 28.4% in Q1 from your last even chronological year back in 2008. The 2008 full year margin was 33.8%. Is it likely that 2010 margin is going to be below or above given the economy and advertising continue to be about where they are now?

I would bet the over.

Yes, we've taken a substantial amount of cost out of the business through some automation of business processes, and just in 2009, some additional headcount reduction. None of those positions are coming back, and if you look at our fixed expenses, will be flat to down for the year, the only expense that will rise will be variable expenses for commissions in concert with revenue. All in, even at our plan, which we're currently exceeding, it was a low-single-digit increase in revenues for the full year driven by the variable expense for commissions.

And finally on the retransmission consent payments being shared with your network partners, where does that stand currently as you continue to renew some of the affiliations during this year?

Well, we have made one deal, and so that's really all that I have to comment on at this point ,and that was with our station in Johnstown-Altoona with CBS, and without going into the specifics of that deal, other than to say that very early on in the discussions, CBS made it clear to me they were not after a piece of our retrans revenues, but rather they were looking to affiliates in their renewals to help support CBS's investment in programming by increasing the fees that we currently pay to the network. So, as in most negotiations, neither party got what it asked for. Obviously the terms of the deal were ultimately acceptable, as both parties signed the new agreement.

I think we're in the early innings of the ballgame, we've only done one agreement thus far and, these new or increased fees, market really hasn't really been set yet. I think it will play out literally over the next couple of years as more affiliation agreements are up for renewal.

I could see the proposed Comcast/NBC merger playing a significant roll in setting the market for these types of discussions, perhaps even the process, for retransmission consent negotiations going forward. As always, I believe that you get what you negotiate, and if either side becomes too aggressive in their position, they will likely be repercussions. I continue to maintain that the best outcome long-term will be for the networks to negotiate on behalf with the MVPDs on behalf of their affiliate body, and then develop a framework for sharing that incremental revenue that's created in the process.

So I think that, as Tom says, we're in the third inning of political, I think we're probably in the top of the first as it relates to these agreements. But the financial impact, certainly of the deal that we've done is -- will be immaterial.

Okay. Thank you.

Thank you. And our next question is from the line of Aaron Watts of Deutsche Bank.

Hey, guys.

Good morning.

Perry, just on some of the pacings that you're seeing and in your discussions with your local guys, has the rebound continued sort of broad-based, where you're seeing all the -- a majority of the categories in positive territory and then also with auto, are you seeing that hold up as well?

To your last question, first. Yes we're seeing auto continue to hold up and show similar increases to our Q1 was buoyed this morning by seeing that Chrysler is announcing a new branding campaign and predicting a big ad spend to go along with that that will show up later on this year.

I think from a broad-based standpoint, if I look at our -- we had 18 categories in 2010 Q1 that contributed $750,000 or more to our top line, and 16 of those 18 categories were up, that included automotive, fast food, furniture, medical, attorneys, radio TV, cable, newspaper, schools, various service accounts, retail, which had been a suspect category for television for a while. Department stores, they were all up over the prior year.

The only two categories that weren't up were for very, very obvious reasons, one was paid programming and, obviously, as we commercials, we cut back on the amount of long-form programming we air because that's not ultimately necessarily very viewer friendly, so that was the conscious decision on our part. And then Telecom, which was related primarily to our southwestern states and the merger of Alltel with Verizon that eliminated ad spend from that one account, which was a significant number for us in the first quarter and that's now rolling off. Those are the only two categories that we're down. Every other category was up, and we've not been able to say that in several years.

Okay. That's good to hear. And then national, still feeling a little stronger than local?

Marginally, not unlike first quarter, where there was a about five basis point better pace on national, but that was the -- that's the law of the lower comps coming off a much lower base. So I would say that trend is continuing into the second quarter on about the same order of magnitude.

Okay. And in your experience, looking back in the past, that's a pretty typical occurrence and would you expect local to start to catch up as we move through the year?

Well, I think that again, it's driven by national comps being so artificially depressed in 2009, kind of the anomaly. I think we would take 16% growth in local on an ongoing basis. As I said earlier, it's almost three quarters of our core ad spend, which we predicted the continued move there, and we invest a lot of time and a lot of money into development of local account executives and local business relationships in all of that. And, again, I think that we would be more than thrilled if that kind of pace continued throughout the year and national outperforms gets back up to a more normalized level for national, and later on the political revenue on top of that which, again, we expect to be substantial.

Okay. Last one for me, more of a big picture. I know we hashed through some of this just a few weeks back, but as with you think about potential consolidation among local broadcasters, and think about the future of the industry, does consolidation make sense, does it need to happen, if cap markets remain open for the foreseeable future, is consolidation possible or do you think that balance sheets are still a little bit over leverage to let the door open for that?

I have been saying for half a dozen years that I think consolidation in the space, it's very consolidated at the top, you've got the vertically integrated network studio, major market owner operators, and then you've got three dozen companies like Nexstar, public and private of any kind of consequence, that are the distribution partners, and we think those three dozen companies should probably become half a dozen at the end of the day. That scale matters, efficiencies would be created, there would be more stock to buy and probably capitalized companies and we just think that that's the natural evolution of the business. If you look at the cable industry and the radio industry, consolidation has already by and large happened in those industries and it has yet to happen here.

The government, the National Ownership Cap, there is no pure plate company that is even halfway there outside of the network owned and operated companies in terms of reaching the 39% cap. So we think it does need to happen, about the only way it could probably happen with strategics right now would be through some sort of a merger. I don't think anyone has got, at this point, balance sheet superiority to be able to lead the charge. But by the same token, I'm personally aware of more than one conversation of substantial private equity sponsors that don't have a current legacy capital structure in the business that the concept of roll up has started to be bandied about in meetings again.

So I do think it will happen, and one of the first places it may happen is some of these companies that have just gone through a recent restructuring, currently in or just out. Those are owned by unnatural holders at this point in time, and I know there's more than one piece that's running around in the sponsor community of trying to roll up a number of those, and then perhaps finding an operating company to actually manage that entire business.

Sure. Okay. Thanks, Perry.

Thank you, sir. (Operator Instructions). And our next question in queue is in the line of Barry Lucas of Gabelli & Company.

Thank you and good morning. Couple of items, Perry, in terms of milestones. You've put this one CBS affiliate to bed in terms of the renewal, s0 what's coming up next, and in particular even though ABC is maybe a small part of your station line up, they seem to have been a little bit more aggressive. So what's on the horizon in materials of other affiliate renewals?

We have, and it's all in the K, by date, but we have 11 FOX affiliates that expire this year and eight ABC affiliates, again, primarily, our ABC affiliates are in the smaller markets, that expire at the end of the year. We also have two NBC affiliates that expire at the end of the year.

Okay. And just switching gears to the balance sheet, the next maturity or next important date for balance sheet is going to be which?

Well, we still have a small $7 million chunk of the picks, but really the next maturity after that, the new revolver matures on December 31 of 2013, which is just inside of the 7% notes, which will mature in January of 2014, so that's really the next big chunk.

And with the refinancing, Tom, what would you say the all-in cost of debt is now?

Oh, I would say it's probably 7%, 7 .5%.

Thanks very much.

Thanks, Barry.

Thank you, sir. And our next question in queue is from the line of Matt Shobe of Gleacher & Company.

Tom, just building on that thought on the balance sheet. It's just that you have kind of 2013 and 2014, you guys mentioned you're going to use free cash flow to pay down some presumably bank debt this year. Couple questions around that. Do -- you've got the ability to do another $100 million term-loan, you mentioned. You've got the 5.5 times the incurrence test on the second lien. How do you look at both timing of maybe doing some of the 2014 maturities early, and ways you may do it in the different parts of the capital structure?

Well, I'm not often asked to give away the play book. The only thing, I will correct you, the new bank agreement is significantly more flexible with regard to our RP capacity. And so, yes, we will pay down bank debt but we will opportunistically look to buy bonds going forward. Clearly we want to clean up the remaining portion of the 13%, which were not tendered. On my hit list, after that is 11 3/8%. But we do have a 7 times incurrence test in addition to the 5.5 times incurrence test; 5.5 through the secured credit and 7 times through the OpCo credit. So there are a couple of hurdles that have to be reached there.

But we do -- we are very focused on reducing debt. I think we've been pretty clear on that, and our free cash flow in 2010 will be substantial, notwithstanding higher overall interest cost because of the financing we put in place. But the quid pro quo for the higher weighted average cost of debt is the fact that we do have significantly more flexibility in the RP basket. So without -- again, without knowing exactly what we're going to do yet, directionally, that's where we're going -- that's where we're headed.

You think, especially with the 11 3/8%, as you mentioned, that maybe you would go after those open market rather than a broader tender for the whole issue? Again, further asking you to give away the play book.

We're going to look at all of our options with regard to those, as well as the remaining 13% and, quite honestly, what I've seen, the 7%s are trading at the largest discounts, so that's obviously a deleveraging move as well.

But it seems -- just one last one on this topic. The 5.5 times at your second lien is maybe a gating factor now, at least is you wanted to do something more first lien than the second lien. Would it make much sense to let that test get lower as your EBITDA increases over the course of this year ,and then maybe do something more first or second lien?

We have that capacity, correct. Yes, that's one of the things but that's -- in order to get below 5.5 and below 7, is a later in 2010 event.

Right.

EBITDA basically has to grow to get there.

Yes. Sure.

But we feel pretty good about those prospects.

Right. Certainly. Thanks, Tom.

Thank you, sir. And our next question is from the line of Harry Demott of Knighthead Capital.

Hey, guys. Matt just swiped some of my questions there, so I'll ask two other ones. Under what circumstances can you issue the other $100 million of term loan? Would that be an add-on to the existing loan or is that sort of a separate loan you'd have to go out and syndicate?

It's something that we have to find buyers for and it's subject to covenant compliance, which, again, it's the incurrence at 5.5 times for the second lien notes and its maintenance at 2.5 times for the first lien debt holders.

Right.

And obviously 7 times for all of the OpCo debt. So there's kind of three hurdles we have to reach. Then, obviously, you've got to have appropriate use for those funds, which would be more than likely refinance other debt and there's a RP kind of needle that you have to thread there as well. So there's a matrix of things that we monitor and keep track of in order to do that.

What's outside the OpCo now?

The only thing that's outside of the OpCo is 11 3/8%, $50 million. That's the only piece of HoldCo debt remaining.

Okay. What are you paying on your banks now?

1% LIBOR floor and 4% LIBOR margin. The LIBOR floor is only applicable on the term loan, not on the revolver.

Okay. Got it. Well I think the rest of the questions I had were answered. So thanks.

Thanks, Harry.

Thanks and our next question is from the line of Karl Hermann from Babson Capital

Hey, guys. Questions have been answered. Thanks.

Thank you, sir. And I show no further questions in queue at this time.

All right. Well I would like to thank everybody for joining us today. We look forward to reporting our Q2 results, which are shaping up nicely in about 90 days. So thanks again for your time and your attention this morning. Have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, you may now disconnect. Everyone have a great day. Thank you.