With the Urban radio specialist’s refinancing plans in disarray, Radio One has been placed on review by Moody’s Investors Service for a possible downgrade of its debt ratings. Radio One has approximately $650 million of rated debt.
Here is the announcement from the ratings agency:
“Moody’s Investors Service placed on review for possible downgrade Radio One, Inc.’s (‘Radio One’) Caa1 Corporate Family Rating (‘CFR’), its Caa2 Probability of Default Rating (‘PDR’) (LD will be assigned to the PDR upon completion of the proposed exchange), and debt instrument ratings as outlined below. The review was driven by the company’s announcement that Radio One’s bank group blocked its August 15 interest payment on the 6.375% senior subordinated notes due 2013.
The bank group has the ability to block the interest payment as Radio One has been in violation of the total leverage covenant under its credit agreement as announced in July.
For the three months ended June 30, 2010, the company reported revenues of $75.2 million in line with expectations and 7.6% ahead of revenues for the same calendar quarter last year. The company’s ability to continue to track its plan for the remainder of 2010 and for FY2011 remains an important part of our rating assessment. Moody’s believes that recovery in a distressed scenario would be greater than 50%-60% due to Radio One’s attractive markets and improved operating performance. Bank facilities are well positioned based on their first priority, secured position ahead of the subordinated notes.
The current ratings are based on Moody’s estimate of the expected near term loss and are under review pending the end of the grace period (30 days ending September 16 when the blocked interest payment constitutes a default) or potential review of final terms of the proposed note exchange, refinancing of bank facilities, or modifications to the existing debt.
If the company has not made the interest payment by the end of the grace period, Moody’s will likely lower the probability of default rating to LD. Under the forbearance agreement with its lenders expiring September 10, 2010, the company no longer has access to its revolver, the company is required to fund monthly interest payments at the default rate (2% penalty + LIBOR + applicable margin), and financial summaries need to be provided each week. In addition, if the company does not make the interest payment on the 6.375% senior subordinated notes within the grace period, bank credit facilities become due immediately and the trustee or holders of at least 25% of the 6.375% senior subordinated notes can declare immediate payment.
While the company may succeed in coming to an agreement with its lenders and make the payment prior to the expiration of the grace period, Moody’s views the blockage as an indication of a greater risk of default and potential for debt impairment given the current acceleration of maturities of approximately $354.6 million in bank facilities to January 1, 2011 absent success in the planned exchange/refinancing of the 8.875% senior subordinated notes due 2012. The bank facilities were scheduled to mature June 2012; however, the maturity is accelerated if the 8.875% senior subordinated notes are not refinanced six months prior to their July 1, 2011 due date. The company reports that 89.8% of the notes have been validly tendered versus the 95% requirement, and the exchange offer is currently extended to August 30, 2010.
The following ratings were placed on review for possible downgrade:
Corporate Family Rating – Caa1
Probability of Default Rating – Caa2 (LD will be assigned to the PDR upon completion of the proposed exchange)
$400 million existing senior secured revolving facility –B2, LGD2-17%
$31.6 million ($300 million original amount) existing first lien term loan –B2, LGD2-17%
The following ratings are not on review for downgrade; however the LGD’s are updated:
8.875% senior subordinated notes due 2011 — Caa3, LGD6-96% from Caa3, LGD4-69%
6.375% senior subordinated notes due 2013 — Caa3, LGD6-96% from Caa3, LGD4-69%”