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Rating Action:

Moody's assigns B1 rating to Lamar's new senior unsecured notes; outlook stable

07 Jan 2021

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 The ratings on the existing senior notes due 2026 will be withdrawn after repayment.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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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