Ratings agencies assess radio’s creditworthiness


Amid numerous credit downgrades for broadcasting companies, the S&P decision for NextMedia was relatively good – an affirmation of its credit rating, albeit with a negative outlook. For Cumulus Media Partners, though, Moody’s Investors Service downgraded its credit ratings, also with a negative outlook.

Neither company has public stock, but they still have to borrow money and they’re big enough to have formal credit ratings.

NextMedia Operating Inc. had been on the CreditWatch list at Standard & Poor’s since March. It’s now been removed, with its corporate credit rating affirmed at B-, but with a negative rating outlook.

"The CreditWatch resolution reflects NextMedia’s successful completion of the asset sales required by its amended credit facility. The negative rating outlook reflects the continued strain that we expect the company to face as financial covenants tighten under continued cyclical pressure on advertising spending, as well as a moderate chance of a further downgrade within the coming year," explained S&P credit analyst Jeanne Mathewson.
Revenue and EBITDA decreased 3.7% and 9.7%, respectively, for the quarter ended Sept. 30, 2008. Outdoor advertising revenue was flat, while radio advertising revenue declined 6%. “We expect the decline in advertising revenue to accelerate in the fourth quarter and continue into 2009,” S&P said of NextMedia.

Cumulus Media Partners (CMP), legally known as CMP Susquehanna, was one of the radio companies slated for review in mid-October by Moody’s Investors Service. That review has been concluded and Moody’s downgraded CMP’s Corporate Family Rating ("CFR") to Caa2 from B2, its probability of default rating to Caa2 from B2 and its speculative grade liquidity rating to SGL-4 from SGL-2. In addition, Moody’s downgraded the company’s senior secured credit facility ratings to Caa1 from B1 and its senior subordinated notes to Ca from Caa1. The rating outlook is negative.

“The rating downgrades reflect Moody’s concerns over CMP’s increasing financial risk as a result of weakening credit metrics in a slow economy. Moody’s expects radio broadcasting revenues, which are highly reliant on cyclical advertising, to come under increasing pressure due to the slowdown in consumer spending, its impact on corporate profits, and the resulting cutbacks in advertising and marketing budgets by several industries. Moody’s believes that the resultant revenue and cash flow deterioration will aggravate CMP’s already high debt-to-EBITDA leverage and weaken other credit metrics,” the ratings agency said.

“We expect the company to generate sufficient cash flow to meet operational needs, however, positive free cash flow remains susceptible to greater than expected revenue declines. Additionally, we believe that CMP will be challenged to remain compliant with its debt-to-EBITDA leverage covenant when it steps down at the end of March 2009, and further thereafter,” Moody’s said.

CMP is owned by a partnership of publicly traded Cumulus Media and a consortium of private equity partners. Cumulus Media manages the company, which has 32 radio station in nine markets.

RBR/TVBR observation: The radio business isn’t going away, but with ad sales suffering loan covenants are going to be a big concern in 2009. In his analysis last week that cut ad spending expectations for all media, BMO Capital’s Lee Westerfield noted that Beasley, Cumulus, Emmis, Entercom, Regent and Salem are the public radio companies in the greatest danger of breeching loan covenants. That list could grow.