The level of leverage of CBS Outdoor is going to head in the wrong direction as its moves to fund a $690M acquisition of outdoor assets, but the company is expected to chip away at the debt over the next two years.
Moody’s Investors Services places the company’s Corporate Family Rating at Ba3, and that will not change, despite an increase in leverage from 4.9x to 5.5x.
It all relates to the issuance of $450M in senior notes, and the likely addition of $100M in more senior notes that are expected to be tacked on to an existing facility.
Moody’s analyst Scott Van den Bosch summed up the aftermath, saying, “we expect leverage to decline over the next two years through EBITDA growth and debt repayment that would more comfortably position the company within the existing rating.”
The moves are all related to the acquisition of Van Wagner Communications, which will build CBS Outdoor’s presence in both New York City and Los Angeles.
Moody’s finds thing to like about the outdoor business. Van den Bosch said, “Compared to other traditional media outlets, the outdoor advertising industry is not likely to suffer from disintermediation and benefits from restrictions on the supply of billboards that help support advertising rates and high asset valuations.” That said, the business is still susceptible to the ups and downs that affect all participants in the advertising business.