The refinancing package that Radio One announced is getting a good reception from Moody’s Investors Service. The corporate credit rating agency says it will give Radio One’s debt an upgrade once the pending exchange of notes and debt financing is completed.
Radio One will have approximately $730 million of debt rated by Moody’s. the rating agency said it will upgrade Radio One’s Corporate Family Rating (CFR) to B3 from Caa1 and its probability of Default Rating (PDR) to B3 from Caa2 pending closing of their proposed note exchange, debt refinancing and purchase of additional interests in TVOne.
“The upgrade will be driven by the extended maturity of the new debt, increased flexibility under its financial covenants as well as expectation of stronger performance going forward. The ratings outlook will also be revised to stable,” Moody’s said.
“Moody’s notes that the proposed exchange offer for the existing subordinated notes will be considered a limited default as the notes are being exchanged for less than face value (albeit at a small discount). The existing Caa1 CFR, Caa2 PDR, and existing debt ratings as well as negative outlook remain in effect until the exchange of notes and refinancing closes,” the ratings agency said.
“The B3 corporate family rating reflects Radio One’s high pro forma debt-to-EBITDA leverage (9.0x pro forma for the transactions and incorporating Moody’s standard adjustments) mitigated by our expectation that operating performance will begin to improve as economic pressures wane allowing the company to reduce leverage and continue to generate modest yet positive free cash flow. Incorporated in the rating is Radio One’s large market presence and niche focus targeting the African-American audience. Continued secular pressures and the company’s reliance on four of its sixteen markets for approximately half of its revenue generation also weigh on Radio One’s rating. While pro forma leverage levels are reflective of a Caa rating, asset values are likely in excess of outstanding debt in all but a distressed liquidation and reflective of a B3 rating if there is sufficient time to de-lever. Given the longer maturity window and expectation of improved flexibility under financial covenants afforded by the proposed debt facilities, the company will have an greater opportunity to de-lever prior to maturity. Even with the strong asset coverage, the company remains weakly positioned in the B3 ratings category. If the company is unable to complete the refinancing of all the existing debt, the shortened maturities combined with the high leverage, will result in the ratings remaining Caa1,” Moody’s said in explaining its ratings actions.
The following ratings will be upgraded pending exchange of notes, debt refinancing and review of final documentation:
Corporate Family rating to B3 from Caa1
Probability of Default to B3 from Caa2 (LD will be assigned to the PDR upon completion of the exchange)
The following ratings will be assigned pending exchange of notes and refinancing:
$50 million senior secured revolving facility due 2014 — Ba3, LGD1, 1%
$350 million senior secured term loan B due approximately 2016 — B1, LGD2, 24%
New second lien notes due 2016 — B3, LGD4 55%
New senior unsecured exchange notes due 2017 — Caa2, LGD5, 82%
To the extent portions of the notes remain outstanding after the exchange, the following ratings will be upgraded at closing:
8.875% senior subordinated notes due 2011 — to Caa2, LGD6, 96% from Caa3, LGD4, 69%
6.375% senior subordinated notes due 2013 — to Caa2, LGD6, 96% from Caa3, LGD4, 69%
The following ratings will be withdrawn at closing:
$500 million existing senior secured revolving facility — B2, LGD2, 17%
$45 million ($300 million original amount) existing first lien term loan — B2, LGD2 17%