The credit rating agency calls the company’s pending equity/debt swap for its senior subordinated notes “tantamount to a default.” Meanwhile, Cumulus Media Partners has extended the early participation deadline for the swap until today as it seeks to reach 98% participation. The regular tender expires April 3rd.
Moody’s Investors Service has downgraded both the Corporate Family Rating and Probability of Default Rating (PDR) for Cumulus Media Partners to Caa3 from Caa2, saying it reflected “a heightened probability of default and correspondingly increased expected loss for the company’s creditors over the forward rating horizon.” The former Caa1 rating for the company’s senior secured bank debt was also lowered, to Caa2, and was placed on review for possible further downgrade pending completion of the pending exchange offer.
Cumulus Media Partners has offered to exchange approximately $189 million of existing and junior-ranking 9-7/8% senior subordinated notes for up to $15 million of new variable rate secured second lien notes plus preferred stock and common stock warrants. “Moody’s views this transaction, upon its assumed successful completion, as tantamount to a default,” the ratings agency said.
“While Moody’s recognizes that the proposed exchange will bring an immediate improvement to CMP’s covenant compliance cushion, the forward looking Caa3 PDR underscores our view that the company faces a high probability of another subsequent default, exacerbated by progressive step-downs in the total debt leverage covenant (tightening from a 10.5 multiple at the end of 12/3/08 to a 9.5 multiple by the end of 2009). In our view, CMP will be challenged to comply with financial covenants if the current pace of declining market spending on radio advertising continues unabated over the near term. Management has indicated that failure to successfully conclude the proposed debt exchange and obtain covenant relief (if necessary) could force the company to explore other alternatives, including a potential reorganization or restructuring under the bankruptcy laws,” Moody’s said in its downgrade announcement.
The early participation deadline (which includes bonus payments) had been due to expire yesterday (3/24). However, Cumulus Media Partners announced that it had been extended one day, until today. The company said the deadline was extended “so that the 98% minimum participation condition may be satisfied prior to the Early Participation Deadline.”
Here’s what note holders are being offered for each $1,000 face value of 9-7/8% senior subordinated notes:
–$63.97 in new notes, plus an early participation bonus of $15.99 for a total of $79.96 in new notes;
–$149.26 in shares of new preferred stock, plus an early participation bonus of $37.31 for a total of $186.57 in new preferred stock
–New warrants exercisable for 17.06 shares of CMP common stock, plus an early participation bonus of 4.26 shares for a total of new warrants exercisable for 21.32 shares of the company’s common stock.
If all of those warrants are exercised the holders would own 40% of the equity of CMP.
RBR/TVBR observation: As we noted previously, the noteholders don’t have a lot of options. If they don’t take the swap deal, a Chapter 11 filing is likely, in which case they would stand in line behind the senior lenders. At this point, the credit rating doesn’t mean much. The highly-leveraged company is fighting for survival.