Moody’s gives Salem a downgrade


With $320 million of debt coming due next year, Salem Communications has some major refinancing to contend with. Moody’s Investors Service sees uncertainty in that refinancing and has lowered Salem’s credit ratings.

“Moody’s Investors Service downgraded the corporate family rating of Salem Communications Holding Corporation (Salem) to B3 from B2, its probability of default rating to Caa1 from B3, and the rating on its 7 ¾% Senior Subordinated Notes due 2010 to Caa2 from Caa1. The downgrades reflect heightened concern regarding the company’s ability to refinance its $75 million term loan B due March 2010 (approximately $71 million outstanding) at par given weak credit market conditions and expectations for continued pressure on advertising revenue due to challenging economic conditions. Furthermore, absent a refinancing of its senior subordinated notes, the maturity of the $165 million term loan C (approximately $161 million outstanding) will move forward to June 2010. Including the bonds, which mature in December 2010, Salem could face approximately $320 million of 2010 debt maturities. Given currently favorable pricing, we anticipate interest expense could increase should the company succeed in refinancing,” Moody’s said in announcing its rating actions.

“The negative outlook reflects uncertainty regarding the company’s ability to address its looming debt maturities. It also continues to incorporate concerns that Salem could face challenge complying with its financial covenants, as well as the potential for advertising declines to continue unabated over the intermediate term,” Moody’s said.

Here is a summary of Moody’s ratings actions:

Salem Communications Holding Corporation

….Corporate Family Rating, Downgraded to B3 from B2

….Probability of Default Rating, Downgraded to Caa1 from B3

….Senior Subordinated Bonds, Downgraded to Caa2, LGD5, 71% from Caa1, LGD5, 70%

….Outlook, Negative

RBR/TVBR observation:
Better to be refinancing in 2010 than in 2009. At least, we all hope the credit markets will finally improve by next year.