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Rating Action:

Moody's assigns B3 rating to Audacy's add on 2nd lien note

13 Oct 2021

New York, October 13, 2021 -- Moody's Investors Service ("Moody's") assigned a B3 rating to Audacy, Inc.'s (Audacy) subsidiary, Audacy Capital Corp.'s $45 million add on to the senior secured 2nd lien note due 2027. All other ratings including Audacy's B2 Corporate Family Rating (CFR), Audacy Capital Corp's Ba3 senior secured credit facility, and B3 rating on the existing senior secured 2nd lien notes are unchanged. The outlook remains negative.

The net proceeds from the new 2nd lien note will be used to repay $44 million of term loan B. In addition, a $40 million draw on the revolver will be used to fund a small digital acquisition. The transaction increases leverage modestly to 14.6x from 14.2x (excluding Moody's standard lease adjustments) as of Q2 2021. Moody's expects the transaction to enhance Audacy's digital capabilities and contribute to growth going forward.

Assignments:

..Issuer: Audacy Capital Corp.

....Senior Secured Second Lien Regular Bond/Debenture, Assigned B3 (LGD5)

RATINGS RATIONALE

Audacy's B2 CFR reflects the extremely high pro forma leverage level (14.6x as of Q2 2021) and Moody's projection that results will continue to improve as the radio industry recovers from the pandemic as well as from growth in digital revenues during the balance of 2021 and 2022. The pandemic has had a significant impact on Audacy's advertising revenue that was compounded by the company's exposure to large markets which suffered greater declines relative to smaller markets. The radio industry is being negatively affected by the shift of advertising dollars to digital mobile and social media as well as heightened competition for listeners from a number of digital music providers. Secular pressures and the cyclical nature of radio advertising demand have the potential to exert pressure on EBITDA from its radio assets over time.

Audacy's live event business was substantially impacted by the pandemic, but this division accounted for less than 8% of revenue in 2019 and the division has a largely variable cost structure. Live events have begun to recover in 2021 and Moody's expects revenue from live events will return close to pre-pandemic levels in 2022. Audacy's LTM free cash flow was slightly negative as of Q2 2021 and will likely approximate breakeven by the end of 2021.

Audacy is the second largest radio broadcaster in the US with leading market positions in 21 of the top 25 markets. The company benefits from a geographically diversified footprint with strong market clusters in most of the areas it operates which enhances its competitive position. A diversified format offering of music, news, and sports as well as live events and digital growth initiatives are also positives to the credit profile. Prior acquisitions to expand its podcasting business and heightened interest from national advertisers are also likely to contribute to growth as the economy continues to recover from the pandemic. Moody's expects Audacy's leading position in sports programming to continue to attract increased advertising revenue from sports betting companies as additional markets legalize gambling.

Moody's analysis has considered the effect on the performance of advertising revenue from the economic recession in the U.S. 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 coronavirus. 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 Audacy's credit profile is the change in financial strategy. Audacy reduced its dividend in 2019 and suspended the remaining dividend in Q2 2020. Moody's expects the company will operate with a more moderate financial policy with the goal to reduce leverage going forward. While Audacy is a publicly traded company listed on the New York Stock Exchange, Joseph M. Field (Chairman) and David J. Field (President /CEO and son of the Chairman) have a significant minority voting interest in the company.

Audacy's speculative grade liquidity (SGL) rating of SGL-3 reflects $45 million of cash on the balance sheet as of Q2 2021 and access to a $250 million revolver. Approximately $227.3 million of the revolver will mature in August 2024 with the remaining $22.7 million due in November 2022. The revolver had $95 million drawn as of Q2 2021, but Audacy executed a $75 million A/R securitization facility in July 2021 and used the proceeds to repay a portion of the revolver. Moody's expects the pro forma revolver balance will be approximately $60 million following the $75 million repayment and $40 million draw as part of the existing transaction. To preserve liquidity, Audacy reduced capex levels to $34 million as of LTM Q2 2021, but Moody's projects capex to increase to the $75 million range in 2021 and 2022. Audacy also suspended the dividend in Q2 2020 ($30 million in 2019 which was already reduced in Q3 2019). Moody's expects free cash flow will be relatively breakeven in 2021, but the free cash flow to debt ratio is projected to improve to the mid-single digit percentage range in 2022 as operations continue to recover from the pandemic.

The revolver is subject to a consolidated net first lien leverage ratio of 4x (up to 4.5x one year after permitted acquisitions) compared to 2.77x as of Q2 2021. In July 2020, Audacy executed a credit amendment that suspends the testing of the financial maintenance covenant until Q4 2020 and allows the company to use calculated EBITDA from Q2, Q3, and Q4 of 2019 in place of comparable quarterly results in 2020 through Q4 2021. Audacy is subject to a $75 million minimum liquidity test during the covenant relief period. The issuance of $45 million of additional 2nd lien notes offsets the impact of the revolver draw to fund the acquisition on the net first lien leverage covenant. Moody's expects Audacy to remain in compliance with the financial covenant during the next twelve months. The term loan is covenant lite.

The negative outlook reflects Audacy's extremely high leverage and modestly negative FCF as of LTM Q2 2021. While the pace of recovery may be affected by the lingering impact of the pandemic, Moody's expects operating performance will continue to improve during the second half of 2021 and 2022. Moody's projects that long term cost savings achieved during the pandemic, continued digital revenue growth, the eventual recovery in advertising categories severely impacted by the pandemic or supply chain disruptions to support a recovery in profitability. Audacy will see reduced high margin political revenue during a non-election year in 2021, but political revenue will return at the end of 2022. Moody's projects Audacy's leverage will decline to the 12x range by the end of 2021 and to under 6x by the end of 2022 as profitability recovers and a portion of free cash flow is directed to debt repayment.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Audacy's ratings could be downgraded if leverage was projected to be sustained above 6x due to a weaker than projected recovery from the pandemic, audience and advertising revenue migration to competing media platforms, or ongoing economic weakness. A free cash flow to debt ratio (after dividends) in the low single-digits, inability to obtain an amendment to covenants if required or a weakened liquidity profile could also lead to negative rating pressure.

Audacy's ratings could be upgraded if leverage declined to the low 4x range, as calculated by Moody's, with a good liquidity profile and a high single-digit percentage of free cash flow to debt ratio. Positive organic revenue growth and expanding EBITDA margins would also be required in addition to confidence that management would maintain financial policies (including dividends, share repurchases, and acquisitions) that were consistent with a higher rating level.

Audacy, Inc., (fka Entercom Communications Corp.) headquartered in Philadelphia, PA, is the second largest US radio broadcaster based on revenue. The company was founded in 1968 by Joseph M. Field and is focused on radio broadcasting with radio stations in large and mid-sized markets as well as podcasting, digital initiatives, and live events. In November 2017, the company completed the merger of CBS Radio. Reported LTM revenue as of Q2 2021 was approximately $1.1 billion.

The principal methodology used in this rating was Media published in June 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276775. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435

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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