As Cumulus Media announced plans to raise $610 million in the Wall Street bond market Standard & Poor’s ratings upgraded its corporate credit rating for the radio company to “B” from “B-minus.” That’s still in junk bond territory, but a step closer to investment grade.
At the same time, S&P assigned a preliminary “CCC-plus” issue-level rating to the $610 million of senior unsecured notes being offered. The ratings agency raised its issue-level rating on the company’s senior secured debt to “B” from “B-minus.” The ratings for Cumulus remain on S&P’s “CreditWatch” list with positive implications.
“The upgrade and continued CreditWatch listing reflect our view that debt leverage and financial risk at the consolidated entity of Cumulus, Citadel, and CMP Susquehanna will be meaningfully lower than at Cumulus prior to the merger,” said Standard & Poor’s credit analyst Jeanne Shoesmith.
“Pro forma for the proposed transaction, we estimate that the consolidated company’s pro forma lease-adjusted debt leverage will be in the mid- to high-6x area (depending on the final stock election by shareholders), compared to Cumulus’ current lease-adjusted debt leverage of 6.8x at Dec. 31, 2010. If cost synergies are included, pro forma lease-adjusted debt leverage drops to the high-5x to low-6x range. The consolidated company’s increased scale, geographic diversity, potentially higher pricing power, along with stronger credit metrics than for Cumulus premerger, could be consistent with a ‘B+’ corporate credit rating,” the analyst added.
In completing its CreditWatch review, Standard & Poor’s said it will evaluate the terms of the capital structure of the combined entity, as well as its business and financial strategies.