More dark clouds are forming over Atlanta-based Cumulus Media. The struggling No. 2 owner by station count of AMs and FMs saw its Corporate Family Rating downgraded by Moody’s Investors Service on Tuesday (4/11), to Caa2 from Caa1.
Moody’s didn’t stop there, lowering Cumulus’ secured credit facilities to Caa1 from B3, and the company’s senior unsecured notes to Ca from Caa3.
Moody’s outlook on Cumulus? It was changed to “negative,” from “stable.”
Why did Moody’s make the moves?
“The downgrade reflects the elevated risk of a restructuring of its balance sheet and its unsustainable leverage level of 11.3x (excluding Moody’s standard lease adjustments) as of Q4 2016,” it notes. “Despite recent operational improvements, EBITDA continued to decline in 2016 and is expected to remain under pressure due to higher content expense and lower political ad revenue.”
Meanwhile, Moody’s Probability of Default Rating was downgraded to Caa3-PD, from Caa1-PD.
The following actions were also taken by Moody’s:
- $200 million 1st Lien Senior Secured Revolver due 2018 (undrawn): Downgraded to “Caa1, LGD2,” from “B3, LGD3”
- 1st Lien Senior Secured Term Loan due 2020 ($1.8 billion outstanding): Downgraded to “Caa1, LGD2,” from “B3, LGD3”
- $610 million of 7.75% senior notes due 2019: Downgraded to “Ca, LGD5,” from “Caa3, LGD5”
Moody’s Ratings Rationale
In further explaining its actions, Moody’s notes that Cumulus’ Free Cash Flow has also declined and was less than 1% as a percentage of outstanding debt as of Q4 2016. “The company does not have access to its revolving credit facility due to covenant constraints, but has a $50 million revolving securitized facility in place and $131 million in cash as of Q4 2016,” it says.
A pending asset sale is expected to add additional cash to the balance sheet in Q2 2017.
Moody’s also notes that, while the nearest debt maturity is the $610 million senior notes due May 2019, the maturity date of the term loans springs to 91 days ahead of the maturity date of the senior notes if more than $200 million of the senior notes are still outstanding at the springing maturity date.
“The negative outlook reflects the heightened potential for a restructuring of its balance sheet and the challenging outlook due to higher contractual content expense and reduced political revenue in a non-election year,” Moody’s added.
An exchange of existing debt for another security would likely be considered a Distressed Exchange by Moody’s.
“An upgrade is not expected in the near term given the high leverage level and potential for a restructuring of its balance sheet,” Moody’s adds. “However, we could consider an upgrade if the company sustains leverage under 7.5x with expectations for stable operating performance. Liquidity would also need to be good with improved availability under the company’s committed revolver facilities and free cash flow-to-debt in the mid to high single digit percentage range.”