Moody’s Investors Service recently downgraded its debt ratings for Salem Communications and said the outlook for the company’s ratings is also “negative.” The ratings company said the downgrade “reflects continued weakness experienced by Salem in national advertising revenue and in local advertising revenue in certain markets. In addition, declines in some of Salem’s key advertising categories have also contributed to a weaker operating performance.” Moody’s also noted that “radio is a mature industry with modest growth prospects.”
Moody’s downgraded Salem Communications Holding Corporation’s ("Salem") Corporate Family Rating to B1 from Ba3 and downgraded its 7 ¾% Senior Subordinated Notes due 2010 to B3 from B2.
“The downgrade reflects continued weakness experienced by Salem in national advertising revenue and in local advertising revenue in certain markets. In addition, declines in some of Salem’s key advertising categories have also contributed to a weaker operating performance. As a result, Moody’s expects that debt to EBITDA leverage will remain above prior expectations over the rating horizon. While Moody’s expects the company to generate modest free cash flow and be able to replace the revolving credit facility that matures in March 2009, the rating and negative outlook nevertheless reflect the tight covenant compliance margin and risks related to refinancing the existing revolving credit facility, in order to maintain adequate external liquidity,” the ratings agency said.
Moody’s has taken the following ratings actions:
Salem Communications Holding Corporation
Corporate family rating — downgraded to B1 from Ba3
Probability-of-default rating — downgraded to B1 from Ba3
7 ¾% Senior Subordinated Notes due 2010 — downgraded to B3 from B2 (LGD 5, 88%)
Rating Outlook — Negative
“Salem’s rating reflects its high debt to EBITDA leverage of 6.3x at 3/31/2008, narrow bank covenant compliance margin and lower EBITDA margins vs. peers mainly due to spending associated with the company’s "development stage" stations and the news talk stations, as well as spending and investments related to the company’s non-broadcast businesses. In addition, the rating incorporates risks related to cross media-competition faced by radio for audience and advertising spending and Moody’s belief that radio is a mature industry with modest growth prospects,” Moody’s explained.
“The ratings are supported by the value of the company’s geographically diversified station portfolio, presence in the top 25 markets, leading position in the religious format niche and lack of significant competition within the format, improving free cash flow generation and the relative stability of the revenue stream from its block advertising sales,” Moody’s said on the positive side.