Being privately owned doesn’t protect you from the impact of an economic downturn, particularly if your company has a significant debt load. Millennium Radio Group LLC is the latest radio group to receive a debt ratings downgrade from Moody’s Investors Service for its Millennium New Jersey Holdco LLC. Moody’s expects the radio company to report a breach of its loan covenants as of the end of Q4 2008 and suffer further revenue erosion in 2009.
Millennium, headed by veteran broadcaster Charlie Banta, has approximately $165 million of debt rated by Moody’s. The company operates a dozen radio station throughout New Jersey and, according to Moody’s, has about $50 million in gross annual revenues.
Here’s the latest assessment from the ratings service:
“Moody’s Investors Service downgraded the corporate family and probability of default ratings for Millennium New Jersey Holdco, LLC (Millennium) to Caa2 from B3 and placed all ratings under review for further possible downgrade. Moody’s anticipates that the fourth quarter 2008 compliance certificate, which management must provide to lenders by the end of March, will show a breach of the maximum leverage covenant within Millennium’s first lien credit agreement.
Dislocation in the financial markets may compound challenges in achieving an amendment, which heightens default risk. Furthermore, perceived erosion of asset value in the broadcast sector would likely negatively impact lender recovery in a restructuring scenario.
Moody’s September 2008 downgrade of Millennium’s ratings and the negative outlook assigned at that time incorporated the likely covenant breach, and we continue to believe leverage will exceed the maximum amount permitted by the covenant. The passage of time with no resolution, as well as expectations that cash flow will deteriorate in 2009 due to continued declines in advertising spending prompted today’s action.
The review for further possible downgrade will focus on the company’s ability to secure an amendment that alleviates covenant pressure and the resultant impact on its liquidity (i.e., upfront costs and/or increased future debt service costs), or to otherwise restructure its debt, which could result in less than full lender recovery, in our view.
Millennium New Jersey Holdco, LLC
….Probability of Default Rating, Downgraded to Caa2 from B3, Under Review for Further Downgrade
….Corporate Family Rating, Downgraded to Caa2 from B3, Under Review for Further Downgrade
….Senior Secured First Lien Bank Credit Facility, Downgraded to Caa1, LGD3, 37%, from B2, Under Review for Further Downgrade
….Senior Secured Second Lien Bank Credit Facility, Downgraded to Ca, LGD5, 89% from Caa2, Under Review for Further Downgrade
….Outlook, Changed To Rating Under Review From Negative
In our opinion, Millennium lacks the necessary liquidity to manage through the economic downturn absent an amendment to its credit agreement or some form of debt restructuring. The Caa2 corporate family rating reflects expectations that Millennium’s leverage will rise from an already high 8 times debt-to-EBITDA due to cyclical and secular pressures facing the radio industry, as well as the company’s geographic concentration and lack of scale. Strong EBITDA margins (in the mid 40% range) and Millennium’s leading positions in its targeted markets support the ratings.
Moody’s most recent rating action concerning Millennium occurred September 15, 2008. At that time Moody’s lowered the corporate family rating to B3 from B2 and changed the ratings outlook to negative from stable.”
RBR/TVBR observation: We note our prediction for 2009: “Many broadcasting companies will trip on loan covenants in 2009. Most, though, will get waivers or renegotiated terms.”