Approximately $698 million of rated debt affected
New York, March 07, 2011 -- Moody's Investors Service assigned a B1, LGD1, 0% rating
to Radio One, Inc.'s ("Radio One") proposed $25 million
first out, first lien revolver due 2015 and a B2, LGD2,
27% rating to the company's new first lien term loan due
2016. Moody's also raised the company's Probability
of Default Rating ("PDR") to Caa1 (from Caa2) and affirmed its Caa1 Corporate
Family Rating ("CFR"). The outlook remains stable.
The proposed $411 million of new credit facilities replace the
existing $385 million facilities with the increase in the term
loan commitment used to fund the $13.7 million capital call
related to TV One (as discussed in Moody's press release dated December
8, 2010) as well as to fund transaction fees, add approximately
$13 million to cash balances, and term out revolver outstandings.
The revision of the PDR to Caa1 from Caa2 results in an upgrade of the
12.5%/15.0% subordinated Notes due 2016 to
Caa2 from Caa3.
Issuer: Radio One, Inc.
The following ratings were assigned:
.New $25 million first out, first lien revolver
due 2015 -- B1, LGD1, 0%
.....New $386 million first
lien term loan due 2016 -- B2, LGD2, 27%
The following ratings were upgraded:
Probability of Default Rating -- Caa1 (from Caa2)
12.5%/15.0% senior subordinated Notes
due 2016—Caa2, LGD5, 81% (from Caa3)
The following rating was unchanged:
.... Corporate Family Rating --
Caa1
The following ratings will be withdrawn upon closing of the transactions:
.Amended & restated $38.8 million first
lien revolver due 2012 -- B1, LGD2, 12%
....Amended & restated $323.0
million first lien term loan due 2012 (tranche B) -- B1,
LGD2, 12%
.$23.7 million first lien term loan (original
amount of $300 million) due 2012 (tranche A) -- B1,
LGD2, 12%
RATING RATIONALE
The Caa1 corporate family rating reflects Radio One's high pro forma debt-to-EBITDA
leverage of approximately 8.0x (incorporating Moody's standard
adjustments) mitigated by recently improved operating performance as a
result of gains in national advertising in 4Q10. Despite anticipated
EBITDA growth and improving net debt-to-EBITDA leverage
ratios for FY2011, debt balances could increase by approximately
$27 million over the next 12 months due to the potential accretion
of the PIK portion of the 12.5%/15% subordinated
notes due 2016. Furthermore, excluding discretionary dividends
from TV One, EBITDA less capex coverage of interest expense (including
PIK portion of the sub notes) is tight at approximately 1.0x.
Incorporated in the rating is Radio One's large market presence and niche
focus targeting the African-American audience, its reliance
on four of its sixteen markets for approximately half of its revenues,
and approximately $17 million in potential funding requirements
scheduled for 1Q2012 related to the company's ownership in Reach
Media. For the 12 months ended December 31, 2010, the
company reported revenues of $280 million, in line with expectations
and 4.8% ahead of revenues for 2009. As expected,
Radio One is refinancing credit facilities in advance of the 2012 maturities
with the proposed new revolver and term loan facilities. Financial
maintenance covenants including maximum senior secured leverage,
maximum total leverage, and minimum interest coverage, are
expected to be set with an approximate 20% EBITDA cushion as well
as with additional limitations on restricted payments, investments
and additional indebtedness.
Radio One's PDR was revised to Caa1 (from Caa2) reflecting Moody's
expectation for an average family level recovery rate. As a result
of the PDR revision, the company's senior subordinated notes
due 2016 were upgraded to Caa2 (from Caa3) and the rating on the Term
Loan B, which we rank below the first out revolver, was lowered
to B2 (from B1).
The stable outlook reflects our expectation that Radio One will address
current challenges in Washington DC and Dallas markets as a result of
management turnover and increased competition, respectively,
and will improve debt-to-EBITDA ratios as the economy stabilizes,
operating performance improves, and free cash flow is applied to
reduce debt or enhance liquidity.
Ratings could be upgraded if debt-to-EBITDA leverage ratios
are sustained below 7.0x (incorporating Moody's standard adjustments)
as a result of an improving economic environment and greater advertising
demand in combination with free cash flow being applied to reduce debt
balances. Ratings could be downgraded if revenue and EBITDA are
negatively impacted by increased competition in one or more of its four
key markets or an unexpected downturn in advertising resulting in debt-to-EBITDA
leverage ratios greater than 9.50x. Increased debt levels
due to discretionary items including share repurchases or the funding
of increased ownership of current investments could also negatively impact
ratings, particularly if these actions impair liquidity.
The most recent rating action for Radio One was on December 8, 2010
when Moody's confirmed its Caa1 CFR and assigned ratings to the company's
amended and restated credit facilities due 2012 in addition to its subordinated
notes due 2016.
Recent Events
On February 25, 2011, Radio One entered into agreements to
increase its ownership in TV One, an unrestricted subsidiary,
to approximately 50.8% from 36.8%.
Purchased interests are expected to come from certain financial investors,
TV One management and Direct TV. These purchases are to be funded
largely with proceeds from a recent $119 million issuance of 10%
notes due 2016 held entirely by funds of Canyon Capital Advisors LLC,
proceeds from the new term loan, plus cash on hand. Although
Radio One may be in a position to consolidate the financial reporting
of TV One, the 10% notes due 2016 are not an obligation of
Radio One. For 2011, we expect TV One to generate more than
the approximately $107 million of revenue and approximately $22
million of EBITDA booked in 2010 as a result of its growing subscriber
base and price escalators. Double digit increases in revenues and
EBITDA for 2011 should provide more than sufficient cash flow to fund
annual debt service of approximately $12 million annually as well
as shareholder dividends. The 10% notes due 2016 carry a
debt incurrence test of 7.0x debt-to-EBITDA.
The transaction implies a valuation of approximately $534 million
for TV One.
Principal methodologies used in this rating were Global Broadcast Industry
published in June 2008, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Radio One Inc., headquartered in Lanham, Maryland,
is an urban oriented multi-media company that operates or owns
interests in broadcasting stations (53 stations in 16 markets),
a cable television network, and Internet-based properties,
largely targeting the African-American audience. The Chairperson
and President (Chairperson's son) hold approximately 92% of the
outstanding voting power of the common stock. The company reported
sales of approximately $280 million through the 12 months ended
December 31, 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
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Moody's Assigns B1 Rating to Radio One's New Revolver and Assigns B2 Rating to its New Term Loan B
