Moody's Investors Service likes the moves Cumulus Media is making to reduce its debt. Funneling the proceeds from big market station sales and a newly upsized note offering to pay down debt have earned the broadcaster a credit rating upgrade. The investor service has elevated its Corporate Family Rating for Cumulus from its credit rating considered “speculative” grade to one that’s considered to have more “moderate” risk. The company’s senior secured term loan was also upgraded from “speculative” grade to one with “moderate risk” of default.
One of the main reasons cited by Moody’s for the upgrade is how Cumulus has reduced its debt-to-cash flow leverage to 5-times as of first quarter 2019 from 6.1-times when it exited bankruptcy more than a year ago. Cumulus has been growing cash flow and using the cash, along with proceeds from its blockbuster $103.5 million six-station sale to Educational Media Foundation, to aggressively pay down debt. The sale to EMF came “at an attractive multiple,” Moody’s says, and the pending $43 million sale of heritage rocker KLOS Los Angeles to Meruelo Media is expected to reduce debt further.
But that comes with a caveat. Moody’s notes that Cumulus faces “challenging market conditions” in the radio industry that is being impacted by the shift of ad dollars to digital mobile and social media, along with “heightened competition” for listeners from digital music providers. “Secular pressures and the cyclical nature of radio advertising demand have the potential to exert substantial pressure” on the company’s financial performance over time, it adds.
Other positives cited by Moody’s are “improved operations” following Mary Berner’s arrival as chief executive in late 2015, cost-cutting, and “high margin” political ad dollars in the 2018 election year. “The Westwood One division has continued to improve following several years of decline,” Moody’s says. And echoing what Berner has said publicly, Moody's says it expects Cumulus “will consider additional deleveraging transactions going forward.” Translation: more big market sales could be coming.
Moody’s forecasts Cumulus will have $70 million in free cash flow by the end of the year, up from $10 million at the end of first quarter. This and cash from the pending KLOS sale and any other divestitures will be used to further pare down the company’s more than $1 billion in debt. Its term loan comes due in 2022 “and it will be important for the company to address the remaining maturity in a timely manner,” Moody’s says.
With revenues expected to be flat in 2019, the loss of political dollars in a non-election year and “challenging conditions in local radio ad revenue,” Moody’s overall outlook for Cumulus is “stable.”