MOODY'S ASSIGNS A3 RATING TO INFINITY BROADCASTING'S NEW BANK FACILITY; ALSO UPGRADES CBS RADIO INC.'S RATINGS TO A3 (SR. UNSECURED), AND OUTDOOR SYSTEMS RATINGS TO Baa1 (SR. SUBORDINATED)
Moody's Investors Service has assigned an A3 senior unsecured debt rating to Infinity Broadcasting Corporation's (Infinity) new $2 billion syndicated revolving bank facility. At the same time, Moody's raised the ratings of Infinity's wholly owned subsidiaries, CBS Radio Inc. and Outdoor Systems, Inc. (OSI). CBS Radio's senior unsecured and subordinated ratings have been upgraded to A3 from Baa3, and to Baa1 from Ba2, respectively. OSI's subordinated ratings have been upgraded to Baa1 from Ba3.
Infinity's rating reflects its significant free cash flow generation ability, modest cashflow leverage, as well as its size, geographic diversity, and low ongoing capital requirements. However, the rating also considers moderate event risk including the prospect of continued cash acquisitions of radio stations and outdoor advertising companies, as well as the likelihood of Infinity purchasing its own stock. The ratings upgrades for CBS Radio and OSI reflect our belief that they are permanent and integral core operating subsidiaries of Infinity, despite the lack of guarantees from Infinity for their respective debt. The outlook for the ratings is stable.
The shares issued in connection with the OSI transaction reduced CBS Corporation's fully diluted stake in Infinity to 64%. CBS is in the process of seeking regulatory approvals for their announced merger with Viacom and is not included in this rating action. Both CBS and Viacom remain on review for potential upgrade. While the CBS and Viacom ratings are being reviewed independently of Infinity, the distance between their ratings and those of Infinity will be somewhat limited due to the majority ownership and common senior management.
Infinity has a superior position in radio (#2 in the US) and dominant position in outdoor advertising (#1 in the US). Infinity,s station group was built through selective acquisitions in the top 50 markets and in 1999 claimed about 10% of the radio industry,s revenues with less than 1% of its stations. Infinity,s outdoor properties penetrate 90 US markets, including the top 50, and the top markets in Canada and Mexico. Infinity also owns a variety of outdoor properties in Europe. The company has successfully tapped the potential in radio and outdoor for EBITDA margins above 40%, with some of the most profitable stations in the US, and with relatively low ongoing capital needs which has resulted in the robust free cash flow. The scope of the company's operations allows the company to tap the national advertising market, which makes the company more competitive with other advertising distribution mediums, and less dependant on local and regional ad spending. However, Moody,s also notes the complete dependence of radio and outdoor on advertising revenues exposes Infinity to economic cycles.
Infinity's financial flexibility enables the company to absorb a relatively large cash acquisition (or several smaller ones) and still bring debt and leverage levels back into the range supportive of an A3 rating. Pro forma for a full year ownership of OSI, 1999 Debt/EBITDA was under 1.5 times. Historically, Infinity management had indicated that Debt/EBITDA of 5.0 times would be appropriate leverage which weighed on the company's ratings. However, since Infinity's IPO, leverage has been consistently modest and cashflow growth has significantly outpaced management's ability to capture waning opportunities. Ultimately, the rating assumes that management will maintain leverage under 2.0 times over the long term and that acquisitions will be within Infinity's areas of core competency.
In March, Infinity announce a planned $1.4 billion cash purchase of 18 radio stations from Clear Channel Communications, Inc. and a planned $425 million cash purchase (including assumed debt) of Go Outdoor Systems Holdings S.A., and its Giraudy subsidiary, a leading provider of outdoor advertising services in France. Moody's anticipates that the company will fund the acquisitions with availability under its bank lines, and make future acquisitions using free cash flow and moderate amounts of debt. Event risk for additional material acquisitions which cannot be funded with intermediate-term cashflows are becoming limited as much of the industry's consolidation has already occurred. In December, Infinity closed its acquisition of OSI and repaid its bank debt. These deals largely fill out Infinity's most obvious needs. What opportunities remain for this historically acquisitive company, are those in smaller US markets, in international markets, and other fill-ins within the top 50 markets as evidenced by the recently announced $90 million stock acquisition of 2 San Antonio radio stations.
Infinity is in the process of establishing a new $2.0 billion senior unsecured credit facility. The facility is incremental to its existing $1.5 billion revolving bank facility. The new facility will be structured as a $500 million 364-day senior unsecured revolver and a $1.5 billion 5-year senior unsecured revolver. The new facilities may be used to backup a commercial paper program, for general corporate purposes, and for acquisitions. The facility will be non-recourse to its parent, CBS, though the existing $1.5 billion facility is guaranteed by CBS.
OSI generates about $400 million in EBITDA and has about $650 in outstanding debt. The implicit support from Infinity, OSI's strong debt protection measures, and the fact that Infinity is not expected to raise any additional debt at the OSI level going forward are supportive of the Baa1 subordinated debt rating. Infinity has managed the debt level at CBS Radio to less than $220 million and is assumed to also provide significant implicit support given the magnitude of the assets and cashflow combined with modest leverage.
The rating assigned is:
Infinity Broadcasting Corporation
Senior Unsecured Bank Debt A3
The ratings upgraded are:
Outdoor Systems, Inc.
Senior Subordinated to Baa1 from Ba3
CBS Radio (formerly American Radio Systems)
Senior Unsecured to A3 from Baa3 (formerly EZ Communications)
Senior Subordinated to Baa1 from Ba2
Subordinated to Baa1 from Ba2
Infinity Broadcasting Corporation, a subsidiary of CBS Corporation, with its headquarters in New York City, New York, operates 162 radio stations, as well as TDI, the Company's outdoor advertising business. Infinity also manages and holds an equity position in Westwood One, Inc.
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