Moody's Downgrades Cumulus
March 29, 2016 at 6:32 AM (PT)
Last week (NET NEWS 3/23), ALL ACCESS reported CUMULUS MEDIA was negotiating with some of its creditors to swap some of its notes for revolving debt and equity. The company said that it has entered non-disclosure agreements with some holders of its 7.75% Senior Notes due 2019 so it can talk with them about a potential swap of the notes for up to 42.5% of the principal amount of each note in certificates for a trust that would hold a participation in CUMULUS's $200 million revolving credit facility. The lenders would assign their commitments to a new lender, and the revolving credit facility would be extended out to MAY 15, 2020 with an increased LIBOR margin to 11% and increased undrawn commitment fee to 5%. And the noteholders would get a pro rata share of an offering of 19.9% of the company's pro forma outstanding common stock.
The move didn't impress MOODY'S INVESTOR SERVICE, which has downgraded CUMULUS MEDIA INC.'s Corporate Family Rating to "Caa1" from "B3" and Probability of Default Rating to "Caa1-PD" from "B3-PD."
MOODY'S also downgraded the company's secured credit facilities to "B3" from "B2" and senior unsecured 7.75% notes to "Caa3" from "Caa2." "The downgrades reflect MOODY's revised forecast indicating a decline in EBITDA over the next 12 months resulting in elevated leverage and reduced free cash flow," wrote MOODY'S. "The outlook is stable."
MOODY'S explained, "CUMULUS' Caa1 Corporate Family Rating reflects the company's excessive leverage with debt-to-EBITDA exceeding 9.5x (including MOODY'S standard adjustments) and MOODY'S revised expectation that debt-to-EBITDA will remain elevated over the next 12 months due to continued declines in network revenue and increased operating expenses more than offsetting the benefits from an expected increase in station group revenue and political ad sales in 2016. Despite debt repayment from the sale of $200 million of non-core real estate holdings to be completed sometime in 2017, leverage will remain above our prior expectations due to deterioration in consolidated EBITDA extending into 2016. Liquidity is adequate over the next 12 months with an undrawn $50 million revolving securitized facility and low single digit percentage free cash flow-to debt despite the decline in EBITDA margins to less than 23% of revenue compared to 33% in 2013 (including MOODY'S standard adjustments). MOODY'S believes the risk of a restructuring, including a distressed exchange, is high given the need to meaningfully reduce leverage in advance of the MAY 2019 maturity of the notes and potential acceleration of the term loan maturity."