Moody’s negative on Radio One


Moody’s Investors Service has downgraded the debt ratings and probability of default ratings for Radio One. The ratings agency also said the rating outlook for the company is negative.

“The downgrades were prompted principally by on-going weakness in the company’s operating performance and a correspondingly weak liquidity profile given Moody’s expectation that minimal cushion is expected to be maintained under tightening financial maintenance covenants as stipulated in the senior secured credit agreement,” Moody’s said.

“The company’s ratings reflect significant financial leverage (as measured  by debt-to-EBITDA of 7.9x for the trailing twelve months ended June 30,  2008, incorporating Moody’s standard adjustments), continued weak operating performance (partly due to softness in several of the company’s largest markets) and modest free cash flow generation relative to debt. In addition, Moody’s expects the company to have minimal cushion under its financial maintenance covenants governed by its senior secured credit agreement, yielding a weak liquidity profile over the forward rating horizon. Ratings also incorporate the inherent cyclicality of the advertising business, Moody’s belief that radio is a mature business facing secular pressure and the increasing fragmentation of advertising spread over a growing number of media.

The ratings are supported by the company’s diverse geographic presence (albeit tempered by a concentration of roughly 50% of revenues in four markets), complementary properties targeting the African-American audience and a meaningful proportion of local advertising revenue,” Moody’s said in announcing its downgrades.

Moody’s took the following rating actions:

Radio One, Inc.

Corporate Family Rating – downgraded to B2 from B1

Probability-of-default rating – downgraded to B2 from B1

$500 million Secured revolver – downgraded to Ba3 from Ba2 (LGD 2, 24%)

$300 million Secured term loan – downgraded to Ba3 from Ba2 (LGD 2, 24%)

$200 million 6 3/8% senior subordinated notes – downgraded to Caa1 from
B3 (LGD 5, 80%)

$300 million 8 7/8% senior subordinated notes – downgraded to Caa1 from
B3 (LGD 5, 80%)

The rating outlook is negative.

RBR/TVBR observation: It seems it has become commonplace for us to report Moody’s, S&P or Fitch downgrading the debt of a radio company. We can’t remember the last time we got to report on an upgrade. The ratings agencies say radio is a mature business facing increasing fragmentation in ad spending – and there’s certainly nothing happening in radio right now to battle that perception. The impact of downgrades, of course, is to make it more difficult and more expensive for radio companies to borrow money, which makes it all the more difficult to improve performance and qualify for an upgrade.