Salem Communications Corporation announced that it has consummated its private placement offering of $300 million of its 9.625% Senior Secured Second Lien Notes due 2016 and the early settlement of its previously announced cash tender offer and consent solicitation with respect to the outstanding 7 3/4% Senior Subordinated Notes due 2010.
Salem said it used the net proceeds from the sale of the new notes, together with borrowings under a new $30 million senior secured credit facility and approximately $28 million of cash on hand, to fund the buyback and repay its existing credit facilities. 100% of the old notes, $86.655 million, were tendered.
Moody’s Investors Service quickly responded with an upgrade of Salem’s credit ratings. The Salem Communications Holding Corporation’s Corporate Family Rating (CFR) moved to B2 from B3 and its Probability of Default Rating (PDR) to B2 from Caa1. Moody’s also assigned a definitive B2 rating to the new offering of $300 million second lien senior secured notes.
“The upgrade reflects the significant reduction in default risk and improvement in the company’s liquidity position resulting from the refinancing. The rating actions conclude the review for possible upgrade initiated on November 16, 2009 and the rating outlook is stable,” Moody’s said.
“The B2 CFR reflects the company’s high leverage (approximately 5.9x LTM 9/30/09 debt-to-EBITDA pro forma for the transaction and incorporating Moody’s standard adjustments), small scale, reliance on the mature radio industry, strong market position in Christian teaching and talk radio, and exposure to cyclical changes in client advertising spending,” the ratings agency stated.
“The stable rating outlook reflects Moody’s expectation that Salem will generate approximately $10-15 million of annual free cash flow that will be used to repay the revolver balance and complete acquisitions over the next several years. Moody’s anticipates the debt reduction along with a moderate rebound in advertising spending will reduce debt-to-EBITDA to a mid 5x range in 2011. Moody’s assumes that core advertising revenue declines will moderate into early 2010 with growth resuming by mid 2010 and that Salem will maintain a good liquidity position with no near-term debt maturities and at least a 10% EBITDA cushion within its financial maintenance covenants. Salem’s debt structure is heavily concentrated in the second lien note and the company will be exposed to significant refinancing risk when the note matures,” Moody’s said.
Upgrades:
..Issuer: Salem Communications Holding Corporation
….Corporate Family Rating, Upgraded to B2 from B3
….Probability of Default Rating, Upgraded to B2 from Caa1
Assignments:
..Issuer: Salem Communications Corporation
….Senior Secured Second Lien Notes, Assigned B2, LGD4 – 53% (was (P)B2, LGD4 – 53%)
Withdrawals:
..Issuer: Salem Communications Holding Corporation
….Senior Subordinated Regular Bond/Debenture, Withdrawn, previously rated Caa2, LGD5 – 73%
Outlook Actions:
..Issuer: Salem Communications Holding Corporation
….Outlook, Changed To Stable From Rating Under Review
