Credit downgrade for Cumulus


Moody’s Investors Service has cut its ratings on some $850 million of debt at Cumulus Media and kept the outlook for the company “negative.” Moody’s sees continuing pressure on the radio company’s top line revenues and free cash flow. The ratings agency sees a high probability that Cumulus will default unless it gets an amendment to its financial covenants.

Moody’s downgraded Cumulus Media’s Corporate Family rating (CFR) to Caa1 from B3, its Probability of Default rating to Caa2 from Caa1 and the rating on its $850 million credit facility ($100 million revolver due 2012 and $750 million term loan due 2014) to Caa1 from B3.

“The downgrade of the CFR to Caa1 largely reflects our expectation that recessionary market conditions will continue to prevail within Cumulus’ served markets over the near- to intermediate-term, placing pressure on the company’s top line and compressing its free cash flow,” said Moody’s.

“The downgrade of the PDR to Caa2 incorporates Moody’s view that there is increasing probability that Cumulus will likely default under its tightening financial covenants over the near term, absent an amendment. Moody’s considers that Cumulus’ lenders will agree to loosen the level of the company’s already-elevated financial maintenance tests only in exchange for significantly higher pricing, which in turn will serve to tighten the company’s liquidity profile,” Moody’s explained.

“The continuing negative outlook emphasizes our concern that the double-digit decline of market spending on radio advertising will persist over the near term and that secular pressure will continue as listeners are provided an increasing array of alternative forms of entertainment and information media,” the ratings agency said of the radio industry as a whole, not just Cumulus.

Then Moody’s commented on Cumulus’ leverage: “The revised Caa1 CFR reflects Cumulus’ heavy debt burden and high financial leverage (likely to exceed 9 times Moody’s adjusted debt to EBITDA by the end of 2009), its vulnerability to spending on radio advertising and the substantial competition which Cumulus faces from rival broadcasters in its mostly mid-sized served markets. Ratings are supported by Cumulus’s significant cash balance, its free cash flow generation and the diversification of its geographic foot print and customer base.”

Here are the details of Moody’s rating actions:

Cumulus Media Inc.

Corporate Family rating — downgraded to Caa1 from B3

Probability of Default rating — downgraded to Caa2 from Caa1

$100 million senior secured revolving credit facility due 2012– downgraded to Caa1 from B3 (LGD 3, 34%)

$750 million senior secured term loan due 2014 — downgraded to Caa1 from B3 (LGD 3, 34%)

The rating outlook remains negative