Moody’s Investors Service affirmed the Ba3 corporate family rating and B2 senior subordinated notes rating of Salem Communications Holding Corporation. However, the outlook for the company was changed to negative from stable, reflecting Moody’s belief that the company has a tightening cushion vis-a-vis its covenants under the bank credit facility.
"Salem’s Ba3 corporate family rating and negative outlook reflect high debt to EBITDA leverage, standing at 6.1 times as of 6/30/2007, narrowing bank covenant compliance margins, minimal free cash flow to debt and lower EBITDA margins vs. peers mainly due to spending associated with the company’s ‘development stage’ stations and the news talk stations. The rating also reflects recent weakness experienced by Salem in certain markets and advertising categories. In addition, the rating incorporates the 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 said. On the plus side, it added "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, and the stability of the revenue stream from its block advertising sales."