Moody’s Investors Service likes a lot of what Cumulus is doing to reduce leverage, but says uncertainties associated with the radio business as a whole and the acknowledged difficulties the company is encountering turning around 10 key stations are cause for caution, and a downgrade.
The company’s corporate family rating remains at B1, but its outlook has changed from stable to negative in the aftermath of its most recent quarterly revenue release, as indicated bht the downgrade of its Speculative Grade Liquidity (SGL) Rating to SGL — 3 from SGL — 2 to reflect reduced liquidity.
The focus on debt is to Moody’s liking. It said, “The company’s B1 corporate family rating is forward looking and reflects Moody’s expectation that management will continue to reduce debt balances with free cash flow resulting in net debt-to-EBITDA ratios of less than 6.0x (including Moody’s standard adjustments, and treating preferred shares as 75% debt) over the rating horizon, with further improvement thereafter consistent with management’s 4.0x reported leverage target.”
It noted recent transactions which were aimed at its deleveraging goals, such as the trade/swap with Townsquare that brought Cumulus more in cash than in property, and which went right into debt repayment for the most part.
However, Moody’s mentioned the cyclical nature of the advertising business and the sluggishness which has afflicted it during recent years.
Then came the problems with the 10 stations.
“The outlook was changed to negative from stable due to the potential for delays in achieving the collective turnaround of 10 underperforming stations and due to weakened liquidity as a result of limited access to its revolver facility, absent an amendment to the net leverage ratio test which steps down to 5.50x by December 31, 2013,” said Moody’s.
It said the possibility of economic downturn or increased competition from a variety of potential sources further crowd the turnaround picture for the troubled stations.