Citing "continued weak operating performance," Moody’s Investors Service has lowered its ratings on Emmis Communications debt. Moody’s does, however, say the company’s large market radio assets provide adequate coverage of its debt load. The ratings agency said its reduction of Emmis’ corporate family rating to B2 from B1 and other ratings reductions reflected the company’s increased debt to EBITDA leverage, which Moody’s put at 8.9 times. Moody’s said it also believed that Emmis "faces a tightening cushion vis-à-vis its covenants under the senior secured credit facility." Moody’s also noted that growth prospects for radio, particularly in large markets, will be challenged by increased advertising fragmentation.
"This industry has gone through a rough patch, and we’ve had challenges in our New York and L.A. markets, just like other operators – but I’ve seen signs of improvement. Regardless, we’re fully aware of where we sit with our banks, and we will continue to do what is necessary to stay within our covenants," Emmis CEO Jeff Smulyan told RBR.
RBR/TVBR observation: Jeff has faced tough times before and managed to come out smiling. But he’s also had to make some hard choices along the way, such as selling WFAN-AM New York to Infinity (now CBS Radio). With pressure from big shareholders, the Moody’s downgrade making it potentially more expensive to borrow and continuing ratings problems in Emmis’ biggest markets, we wait to see what tough choices Jeff will make this time. In the mean time, have a cup of coffee and what RBR/TVBR sees is more of the SOS coming from many CEO’s as they line their pockets with Gold.