With the credit markets tightening, JP Morgan, UBS, Macquarie Capital and RBC Capital Markets have restructured the senior debt they’re placing for Cumulus Media to cover its acquisitions of both Cumulus Media Partners and Citadel Broadcasting. But the reworked deal has gotten the 1st lien notes an upgrade from Moody’s Investors Service.
Moody’s assigned a B2 rating to Cumulus Media’s proposed $790 million of 2nd lien notes due 2018. Under the revised debt structure, the proposed 2nd lien notes replace a portion of the previously proposed $2.04 billion of 1st lien notes. The combined term loan amount remains
unchanged and will now include $1,250 million of 1st lien notes plus $790 million of 2nd lien notes. As a result of the cushion provided by the 2nd lien notes, ratings on the 1st lien notes were upgraded, Moody’s noted. Other ratings were unchanged and the outlook remains stable.
Moody’s said continuation of the B1 corporate family rating reflects Cumulus’ high pro forma debt-to-EBITDA leverage of approximately 5.7x estimated for 12/31/2011 (including Moody’s standard adjustments and treating 75% of preferred shares as debt, if issued) and assuming selling shareholders of Citadel require the maximum amount of cash payments, instead of stock. Ratings also reflect the cyclical nature of radio advertising demand evidenced by the revenue declines suffered by radio broadcasters during the recent recession, fragmentation of media outlets, and potential challenges associated with a large acquisition, the ratings agency said. It noted that Citadel has $740 million in revenue and 225 stations compared to $445 million in revenue and 346 stations for the combined Cumulus and CMP.
Ratings are supported, however, by the company’s national scale, geographic and market diversity as well as expected 40% EBITDA margins, Moody’s said in its ratings statement. Post-transactions, Moody’s said Cumulus is expected to generate more than $300 million of annual free cash flow, or 10% of debt balances, from a well-clustered radio station portfolio that is effectively diversified by programming formats and audience demographics. Although revenues are expected to grow in the low to mid-single digit range through 2012, planned cost reductions will contribute to increasing free cash flow generation and debt reduction resulting in improved credit metrics.
“Management has a multi-year track record of refining its proprietary technology platform and has been successful in driving down costs resulting in industry leading EBITDA margins. Management also confirms its strategy to reduce debt balances and targets reported gross debt-to-EBITDA ratios of 4.0x or better to gain operational and financial flexibility. In Moody’s opinion, Cumulus’ experienced management team and commitment to reduce debt balances provide rating support,” said Carl Salas, a Moody’s Vice President and Senior Analyst.
Here are the ratings actions by Moody’s.
..Issuer: Cumulus Media Holdings Inc. (formerly Cadet Holding Corporation)
..NEW $790 million Senior Secured 2nd Lien Term Loan: Assigned B2 (LGD 5 — 70%)
..Issuer: Cumulus Media Holdings Inc.
..$375 million Senior Secured 1st Lien Revolver: Upgraded to Ba2 (LGD 2 – 20%) from Ba3 (LGD 3 — 38%)
..$1,250 million Senior Secured 1st Lien Term Loan (previously $2,040 million): Upgraded to Ba2 (LGD 2 — 20%) from Ba3 (LGD 3 — 38%)
..Issuer: Cumulus Media Inc.
..Corporate Family Rating (CFR): Affirmed B1
…..Probability of Default Rating (PDR): Affirmed B1
..$610 million Senior Unsecured Notes: Affirmed B3, point estimates updated (to LGD 6 — 93% from LGD 6 — 90%) – expected to be assumed by Cumulus Media Holdings Inc. when acquisition closes