Moody's rates Entercom refinance moves

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Entercom is doing a $645 million debt refinancing in three chunks. Moody’s Investors Service has evaluate the debt offerings and given them decent ratings. Not investment grade, to be sure, but decent credit ratings in the high-yield arena (does anyone still use the term “junk bonds” for non-investment grade?).


Moody’s Investors Service assigned a B2 Corporate Family Rating (CFR) – that’s five steps below investment grade – and a B2 Probability of Default Rating (PDR) to Entercom Communications Corp. Moody’s also assigned Ba3, LGD2 — 27% ratings to the company’s proposed $50 Million 1st Lien Senior Secured Revolver and $345 Million 1st Lien Senior Secured Term Loan B and assigned a Caa1, LGD5 — 82% rating to the $250 Million Senior Unsecured Notes. The ratings agency noted that the new debt issuances will be used to refinance the existing unrated revolver and term loan A which mature in June 2012. In addition, Moody’s assigned a Speculative Grade Liquidity (SGL) Rating of SGL-2 and the rating outlook is stable.

“The B2 corporate family rating reflects Entercom’s high debt-to-EBITDA leverage of 6.3x as of September 30, 2011 (including Moody’s standard adjustments) which we believe will improve to less than 5.5x by year end 2012 assuming benefits from cost initiatives are realized, market weakness in San Francisco stabilizes, and management resolves performance issues in Boston. Ratings also reflect media fragmentation and the cyclical nature of radio advertising demand evidenced by the revenue declines suffered by radio broadcasters during the recent recession,” Moody’s said in its ratings rationale. “Ratings are supported by the company’s geographic diversity and good  EBITDA margins. Moody’s expects Entercom to generate more than $40 million to $45 million of annual free cash flow, or 6% to 7% of debt balances, despite higher interest rates on new credit facilities and the proposed notes reflecting the benefits of the company’s well-clustered radio station portfolio focused on top 50 markets and the recently completed migration to simulcasting of AM stations on FM signals in key markets. Core revenues are expected to grow in the low single digits through 2012 and contribute to increasing free cash flow and continued debt reduction resulting in improved credit metrics. Management confirms its strategy to reduce debt balances targeting reported debt-to- EBITDA ratios of 4.0x to 4.5x (approximately 4.4x to 4.9x including Moody’s standard adjustments) and has a good track record for paying down debt balances consistently since 2007. Moody’s notes the company reduced funded debt balances to $606 million as of 3Q2011 from $974 million at FYE 2007.”

Moody’s added, “The stable outlook reflects our view that revenue deterioration in San Francisco and Boston will stabilize and that EBITDA will track management’s plan including initiatives to reduce costs. The outlook also incorporates our expectation that Entercom will maintain good liquidity and apply free cash flow to reduce debt balances resulting in debt-to-EBITDA leverage remaining below initial levels with free cash flow-to debt ratios of more than 6% in the near term. Financial metrics are expected to improve thereafter, consistent with management’s leverage target.”

Assignments:

.. Issuer: Entercom Communications Corp.

….. Corporate Family Rating: Assigned B2

….. Probability of Default Rating: Assigned B2

….. New $50 Million First Lien Senior Secured Revolver – Assigned Ba3, LGD2 – 27%

….. New $345 Million First Lien Senior Secured Term Loan B – Assigned Ba3, LGD2 – 27%

….. New $250 Million Senior Unsecured Notes – Assigned Caa1, LGD5 – 82%

. Speculative Grade Liquidity Rating: Assigned SGL – 2

Outlook Actions:

.. Issuer: Entercom Communications Corp.

.Outlook is Stable.