Both the corporate family rating of radio group Cumulus Media and its probability of default rating slipped down a notch in the assessment of Wall Street watcher Moody’s Investors Service – but the group also received a vote of confidence from the organization.
The CFR moved down from B1 to B2, and the PDR similarly dropped from B1-PD to B2-PD.However, Moody’s saw fit to upgrade its outlook from Negative to Stable.
The primary reason for the downgrades was the failure to meet expectations in Q4 2012, coupled with a slow start to 2013. This slowed the company’s efforts to bring its leverage down, sparking Moody’s reaction.
Leverage is down to 7.1x from a high of 7.4x, said Moody’s, but that 7.1x is higher than was expected for this point in time.
Moody’s explained, “Despite more positive pacing reports for 2Q2013, debt ratings are pressured by challenges related to turning around 10 underperforming stations in eight of its larger markets which are expected to breakeven only in the second half of 2013. The company’s national scale, geographic and market size diversity as well as expected run rate EBITDA margins of 38% (including Moody’s standard adjustments) support ratings. Cumulus is focused on debt repayment and the required $63 million excess cash flow term loan prepayment due in the first week of April 2013 is expected to be followed by voluntary prepayments in the second half of this year which will help to reduce leverage in the absence of EBITDA growth.”
Cumulus is projected to generate flat revenues, based on the loss of political revenue coupled with a beneficial decrease in expenses. Working it the company’s favor is its “well-balanced” station portolio, diversified programming offerings and multiple audience demographics it is capable of delivering.
The stable rating is based on flat advertising revenue coupled with the potential to increasing the amount generated from non-traditional revenue streams.
RBR-TVBR observation: The sooner Cumulus can turn around the terrible ten, the speedier will be its move to full financial health. We keep hearing about the group of big market stations from the Citadel portfolio that are single-handedly able to erase gains realized by the rest of the radio portfolio in its entirety.
In its last corporate conference call, Lew Dickey said that the company expects them to start generating back ink by the second half of 2013. If that happens, maybe Moody’s will find a reason to start scoring it a little higher.