New York, January 07, 2021 -- Moody's Investors Service, ("Moody's") assigned a B1 rating to Lamar
Advertising Company's (Lamar) subsidiary, Lamar Media Corporation's
(Lamar Media) proposed senior unsecured note. Lamar's existing
ratings remain unchanged including the Ba3 corporate family rating (CFR),
as well as Lamar Media's Baa3 senior secured credit facility and
B1 rating on the existing senior unsecured notes. The outlook remains
stable.
The net proceeds from the $550 million note, cash on the
balance sheet, and a draw on the existing revolving credit and Account
Securitization program will be used to repay the $650 million senior
notes due 2026.
The transaction is expected to lead to lower annual interest expense of
approximately $15 million depending on final pricing. Pro
forma leverage for the financing transaction is approximately 4.5x
(excluding Moody's standard adjustments for lease expenses), down
slightly from 4.6x as of Q3 2020. The transaction decreases
cash on the balance sheet, as well as modestly reduces revolver
and A/R securitization availability, but Moody's expects Lamar will
maintain a good liquidity position going forward. The ratings on
the existing senior notes due 2026 will be withdrawn after repayment.
Assignments:
..Issuer: Lamar Media Corporation
....Proposed Senior Unsecured Regular Bond/Debenture,
Assigned B1 (LGD4)
RATINGS RATIONALE
Lamar's Ba3 CFR reflects the ongoing impact from the coronavirus pandemic
on outdoor advertising spending which has led to higher leverage and decreased
operating cash flow. The outdoor industry remains vulnerable to
consumer ad spending and contract terms are generally shorter than in
prior periods. The outdoor industry has been impacted more rapidly
than in prior economic recessions, but Moody's expects that
performance should improve quicker than in previous recoveries due to
the lower commitment level and ease of initiating new outdoor campaigns.
Lamar benefits from its market presence as one of the largest outdoor
advertising companies in the US, the high-margin business
model, and strong cash flow generation prior to dividend payments.
The ability to convert traditional static billboards to digital provides
growth opportunities after the impact of the pandemic subsides.
As a pure play outdoor advertising company, Lamar provides mainly
local advertising and derives revenues from a diversified customer base,
with no single advertiser accounting for more than 2% of the company's
billboard advertising revenue.
Moody's projects Lamar will continue to be less affected by the pandemic
compared to the rest of the industry given the company's geographically
diversified market position with lower levels of transit exposure.
Lamar has greater presence in small and mid-sized markets,
with less focus on major metropolitan areas that are more exposed to volatile
national advertising and likely to be impacted by the pandemic to a greater
degree. Compared to other traditional media outlets, the
outdoor advertising industry is not likely to suffer from disintermediation
and benefits from restrictions on the supply of billboards which help
support advertising rates and high asset valuations.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Moody's
analysis has considered the effect on the performance of advertising revenue
from the current weak US economic activity and a gradual recovery for
the coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high. Moody's regards the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety.
A governance impact that Moody's considers in Lamar's credit profile is
the relatively aggressive financial policy. Historically,
Lamar has paid material dividends that reduce the amount of free cash
flow available for debt repayment or acquisitions. Lamar reduced
the quarterly dividend in Q2 2020, but will continue operating as
a REIT and Moody's expects dividend payments will increase as performance
improves. Several acquisitions have been completed historically
and additional purchases are possible going forward. Lamar is a
publicly traded company listed on the NASDAQ stock Market, but the
Reilly family has voting control of the company.
Moody's speculative grade liquidity (SGL) rating of SGL-2
reflects expectations that Lamar will maintain a good liquidity position
over the next year. The pro forma cash balance will be about $38
million and Lamar will have over $692 million of availability on
the $750 million revolver due 2025 as of Q3 2020. Lamar
also has a $175 million A/R securitization that will have $155
million drawn as adjusted for the transaction as of Q3 2020. Moody's
expects operating cash flow to decline in the near term, but the
reduction in the dividend to $50 million from $101 million
per quarter and lower capex will offset the impact of the pandemic on
free cash flow. Moody's projects Lamar will spend about $65
million in capex in 2020 and $120 million in 2021 and that Lamar
will increase dividend payments in 2021 as the company recovers from the
impact of the pandemic.
Free cash flow as a percentage of debt was 7% LTM as of Q3 2020
and Moody's expects free cash flow will continue to remain positive in
2021. There is no required amortization payment on the term loan
B and operating cash flow will likely be used for dividends, capex,
debt repayment or acquisitions. Lamar has an At-the-Market
(ATM) offering program which could be used to boost liquidity or help
finance acquisitions. Assets sales of outdoor billboards that typically
trade at very high valuations could also be a source of liquidity if needed.
The required secured net debt covenant ratio is 4.5x compared to
a 0.9x ratio as of Q3 2020 and is applicable to the revolving credit
facility only. The term loan B is covenant lite. Moody's
projects that Lamar will maintain a significant cushion of compliance.
The stable outlook reflects Moody's expectation that leverage will increase
modestly in the near term due to lower revenue and EBITDA and cash flow
from operations will decrease. However, Lamar has good liquidity
to manage through the pandemic and will be less impacted than other operators
in the industry given its geographically diversified market position with
limited transit exposure. Moody's expects leverage will start
to decline in Q2 2021 from yoy profit growth and that leverage will decrease
towards the low 4x range by the end of 2021 aided by Lamar's strong market
position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The required distribution of 90% of taxable income from a REIT
qualified subsidiary limits upward rating pressure. However,
an upgrade could occur if leverage was maintained below 4x on a sustained
basis (excluding Moody's standard lease adjustments) with confidence that
the board of directors intended to maintain leverage below this level.
Also required would be a balanced financial policy between debt and equity
holders, free cash flow after distributions of about 5% of
debt, and a good liquidity position.
A ratings downgrade would occur if leverage was sustained above 5x (excluding
Moody's standard lease adjustment) due to a debt financed acquisition
or a material decline in advertising spend. Failure to maintain
an adequate liquidity position could also lead to negative rating pressure.
Lamar Advertising Company (Lamar), with its headquarters in Baton
Rouge, Louisiana, is one of the leading owner and operators
of advertising structures in the U.S. and Canada.
Lamar is publicly traded, but the Reilly family has voting control
of the company. Lamar generated revenues of approximately $1.6
billion in the LTM period ending Q3 2020.
The principal methodology used in this rating was Media Industry published
in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Scott Van den Bosch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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