Moody’s Investor Service believes leverage is a bit on the high side at religious broadcast specialist Salem, but expects that number to shrink this year while revenue grows at least a bit. A positive is the stability of its block programming segment which yields a less volatile revenue stream than the advertising stream.
Salem has taken out a $300M first lien term loan which Moody’s says will be used primarly to refinance existing instruments.
The company’s Corporate Family Rating is B2, reflective of a high debt-to-EBITDA ratio of 5.9x. Moody’s expects that to improve to about 5.5x by year’s end, and further expects to see low-single-digit revenue gains despite the lack of political income this year.
One of the things Moody’s likes about Salem is its lineup of programmers who pay to use the company’s stations, giving it a stable income base totally immune to the vagaries of the advertising climate. In 2012, this income stream provided 41% of the company’s net broadcast revenue.
The volatility is in the non-commercial status of most of Salem’s clients – many of them are facing difficult fund-raising challenges. Nevertheless, more than 90% of the client base returns to the air each year.
Salem is rated Stable. This could change for the worse if leverage approaches 6.0x or if revenue growth is stymied on way or another. However, it could be upgraded if the company is able to push leverage to 5.0x or less, or records revenue gains in the high single digits.
RBR-TVBR observation: We thought that the depth of the financial collapse was demonstrated when even Salem was caught up in it. We had seen the company surf right over other lesser economic downturns thanks to the fact it did not rely entirely on advertising to fill its coffers.
Salem is a group that has taken great strides to develop an online presence. And when business conditions return to some semblance of normal, we expect its unique business model will once again render it one of the most reliable profit producers in the radio universe.