Moody's positive on latest Radio One refi


Moody’s Investors Service upgraded one of its ratings on Radio One as it assigned credit ratings to the company’s planned refinance of its senior loans. Also, Moody’s signaled that other upgrades could be coming if the company reduces its leverage.

The rating service assigned a B1 rating to the proposed $25 million first lien revolver and a B2 rating to the proposed $386.0 million term loan, both of which were announced on Monday (3/7). Both are below investment grade, as are Radio One’s existing ratings.

Moody’s did, however, raise the company’s Probability of Default Rating by one notch to Caa1 from Caa2. Also, the rating on its 12.5%/15.0% senior subordinated notes due 2016 moved up a notch to Caa2 from Caa3.

Radio One’s corporate family rating was confirmed to stay at Caa1, which in the complicated ratings system is seven notches below investment grade. “The Caa1 corporate family rating reflects Radio One’s high pro forma debt-to-EBITDA leverage of approximately 8.0x (incorporating Moody’s standard adjustments) mitigated by recently improved operating performance as a result of gains in national advertising in 4Q10. Despite anticipated EBITDA growth and improving net debt-to-EBITDA leverage ratios for FY2011, debt balances could increase by approximately $27 million over the next 12 months due to the potential accretion of the PIK portion of the 12.5%/15% subordinated notes due 2016. Furthermore, excluding discretionary dividends from TV One, EBITDA less capex coverage of interest expense (including PIK portion of the sub notes) is tight at approximately 1.0x. Incorporated in the rating is Radio One’s large market presence and niche focus targeting the African-American audience, its reliance on four of its sixteen markets for approximately half of its revenues, and approximately $17 million in potential funding requirements scheduled for 1Q2012 related to the company’s ownership in Reach Media,” Moody’s explained.

But there could be good news ahead on the credit rating front: “Ratings could be upgraded if debt-to-EBITDA leverage ratios are sustained below 7.0x (incorporating Moody’s standard adjustments) as a result of an improving economic environment and greater advertising demand in combination with free cash flow being applied to reduce debt balances. Ratings could be downgraded if revenue and EBITDA are negatively impacted by increased competition in one or more of its four key markets or an unexpected downturn in advertising resulting in debt-to-EBITDA leverage ratios greater than 9.50x. Increased debt levels due to discretionary items including share repurchases or the funding of increased ownership of current investments could also negatively impact ratings, particularly if these actions impair liquidity,” the ratings agency stated.

RBR-TVBR observation: As business gets better for radio, credit availability is improving, however slowly. The bond markets have certainly been receptive to radio issues. This new senior credit facility for Radio One is being syndicated by Credit Suisse and Deutsche Bank, indicated that the big banks are interested in lending to established broadcasters. What we haven’t seen, though, is any indication of renewed interest in lending to back new companies in making radio and TV acquisitions.