Moody’s looks for Citadel to restructure


Moody’s Investors Service has cut its corporate debt rating for Citadel Broadcasting to a basement-level Caa3 and its probability of default rating to Ca. Moody’s says the ratings outlook is “stable” – mainly because the ratings now factor in recovery levels for creditors from a bankruptcy filing or other restructuring.

The downgrades by Moody’s cover approximately $2 billion of debt at Citadel.

“The downgrades of Citadel’s ratings, and in particular its PDR, incorporate the elevated risk of default following the company’s recent announcement that it engaged Lazard Freres & Co. LLC to provide financial and advisory services in evaluating financial options, including a possible restructuring of its capital structure. Citadel’s Caa3 CFR as compared to its lower Ca PDR, reflects Moody’s expectation of an above average recovery for the debt. The rating outlook is stable as all ratings now reflect Moody’s estimate of ultimate recovery levels for creditors upon emergence from an anticipated near-term restructuring, with the exception of the PDR which would revert to a “D” rating in the event of a bankruptcy filing or some other form of wholesale default on the company’s obligations due to a restructuring,” Moody’s said in its analysis.

The ratings agency noted that on March 26th, Citadel entered into the fourth amendment and waiver of its credit agreement dated June 12, 2007. “Among its provisions, Citadel’s total leverage covenant was waived for the remainder of 2009 and a cumulative minimum monthly EBITDA test was introduced. Assuming the company does not refinance or restructure its debt and given the current economic environment and Moody’s expectations for continuing weak broadcast advertising through 2009, Moody’s believes Citadel will need to seek an additional amendment and/or waiver in the first quarter of 2010 as the company will be extremely challenged to meet either the new stipulation that requires it to have at least $150 million of available cash on January 15, 2010 or its original total leverage covenant which returns for the quarter ending March 31, 2010,” Moody’s said.

“Moody’s anticipates that Citadel’s bank group will continue to provide amendments and/or waivers as long as the company is able to generate free cash flow, which Moody’s believes is likely in 2009 and 2010, although a pre-emptive restructuring on a larger scale may occur given ongoing weakness in the capital markets and bank debt amortization requirements beginning next year which could be greater than free cash flow generation if ad revenues do not rebound in time. In addition, the debt load is increasing due to the higher interest cost following the latest amendment which is being added to the debt outstanding at maturity (PIK). Citadel’s debt is almost completely comprised of bank loans and there is minimal junior capital to absorb any losses in a bankruptcy or restructuring,” the analysis by the credit rating agency stated.

“The amendment also requires Citadel to modify the maturity date of its unrated convertible subordinated notes ($48 million as of March 31, 2009) to no earlier than September 30, 2014 (after the bank facility matures) from February 15, 2011. If the company is successful with this note exchange, it would likely be deemed as a limited default distressed exchange,” Moody’s noted.

Moody’s said it had taken the following ratings actions:

Issuer: Citadel Broadcasting Corporation

..Corporate Family Rating — Downgraded to Caa3 from Caa2

..Probability of Default rating — Downgraded to Ca from Caa3

..Senior Secured Credit Facility — Downgraded to Caa3 (LGD 3, 32%) from Caa2 (LGD 3, 31%)

..Speculative Grade Liquidity Rating — Remains at SGL-4

..Outlook — Changed to Stable from Negative

RBR/TVBR observation: Two questions. 1) Why does anyone continue to pay even three or four cents per share for Citadel stock, when it appears shareholders will get absolutely nothing from the coming restructuring? 2) Why have Ted Forstmann and the other directors left the architect of this disaster in place as CEO?

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