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Announcement:

Moody's changes Outlook of Cumulus Media to Negative from Stable; affirms B1 CFR

Global Credit Research - 16 Nov 2012

Approximately $3 billion of rated debt affected

New York, November 16, 2012 -- Moody's Investors Service changed the rating outlook of Cumulus Media Inc. ("Cumulus") to negative from stable following the company's 3rd quarter 2012 earnings call. The negative outlook reflects the potential for delays in achieving the collective turnaround of 10 underperforming stations and weakened liquidity given limited access to its revolver facility. Moody's affirmed the B1 Corporate Family Rating and Probability of Default Rating, but downgraded the Speculative Grade Liquidity (SGL) Rating to SGL -- 3 from SGL -- 2 to reflect reduced liquidity. All debt instrument ratings were affirmed with updated loss given default (LGD) point estimates, as outlined below.

Affirmed:

..Issuer: Cumulus Media Inc.

.Corporate Family Rating (CFR): Affirmed B1

.....Probability of Default Rating (PDR): Affirmed B1

..Issuer: Cumulus Media Holdings Inc.

$300 million 1st lien sr secured revolver due September 2016: Affirmed Ba2, LGD2 -- 22% (from LGD2 -- 20%)

1st lien sr secured term loan ($1,314 million outstanding) due September 2018: Affirmed Ba2, LGD 2 -- 22% (from LGD2-20%)

...$790 million 2nd lien sr secured term loan due September 2019: Affirmed B2, LGD4 -- 66% (from LGD5 -- 70%)

$610 million 7.75% sr notes due May 2019: Affirmed B3, LGD5 -- 89% (from LGD6 -- 93%)

Downgraded:

..Issuer: Cumulus Media Inc.

.Speculative Grade Liquidity (SGL) Rating: Downgraded to SGL -- 3 from SGL -- 2

Outlook Actions:

..Issuer: Cumulus Media Inc.

.Outlook, Changed to Negative from Stable

SUMMARY RATING RATIONALE

The company's B1 corporate family rating is forward looking and reflects Moody's expectation that management will continue to reduce debt balances with free cash flow resulting in net debt-to-EBITDA ratios of less than 6.0x (including Moody's standard adjustments, and treating preferred shares as 75% debt) over the rating horizon, with further improvement thereafter consistent with management's 4.0x reported leverage target. Debt-to-EBITDA leverage of 6.7x estimated for December 31, 2012 falls outside the rating category, but reflects improvement compared to 7.4x for LTM March 31, 2012. Management took actions to reduce leverage by selling non-core stations in exchange for larger market stations plus $115 million in cash which was used to reduce debt balances. In total, roughly $260 million of debt and preferred shares have been repaid. Cumulus also completed steps to realize $52 million of targeted synergies and has eliminated most of the uncertainties related to assimilating significant acquisitions which closed in the second half of 2011. Ratings incorporate the cyclical nature of radio advertising demand evidenced by the revenue declines suffered by radio broadcasters during the past recession and by the sluggish growth witnessed following the downturn. Ratings are pressured by challenges related to turning around weaker than expected operating performance, more recently from 10 stations in eight of its larger markets, in the face of increasing competition for listenership from existing and new media. The company's national scale, geographic and market size diversity as well as expected run rate EBITDA margins greater than 38% (including Moody's standard adjustments) support ratings. Looking forward, Cumulus is expected to generate more than $200 million of annual free cash flow, or 7% - 8% of debt balances, from its well-clustered radio station portfolio that is effectively diversified by programming formats and audience demographics. Although revenue growth is expected to be flat in 2013 due in part to the absence of significant political advertising, expected incremental expense reductions provide some cushion to the extent revenues decline.

The outlook was changed to negative from stable due to the potential for delays in achieving the collective turnaround of 10 underperforming stations and due to weakened liquidity as a result of limited access to its revolver facility, absent an amendment to the net leverage ratio test which steps down to 5.50x by December 31, 2013. The outlook incorporates Moody's expectations for generally flat advertising revenue growth for the radio industry in 2013 combined with challenges related to Cumulus' ability to generate incremental EBITDA from new revenue streams as planned. Ratings could be downgraded if Moody's believes that debt-to-EBITDA ratios will be sustained above 6.0x (including Moody's standard adjustments) beyond the rating horizon due to deterioration in performance as a result of increased competition in key markets, the inability to turn around underperforming stations, an economic downturn, or audience and advertising revenue migration to competing media platforms. Ratings could also be downgraded if leveraging events such as debt financed acquisitions result in debt-to-EBITDA ratios being sustained above 6.0x or if there is further deterioration in liquidity. The outlook could be revised to stable if we are assured that leverage will track management's plan improving to less than 6.0x and if liquidity is enhanced with good access to a revolver facility in an acceptable amount or good levels of excess cash.

Recent Events

In October 2012, Cumulus signed a definitive agreement to purchase WFME-FM with an upfront payment of $40 million, providing the company with a third station in the New York City area. The transaction is expected to close in the fourth quarter of 2012. Cumulus could pay an additional $10 million if it decides to move the signal to Manhattan from West Orange, NJ.

The principal methodology used in rating Cumulus was the Broadcast and Advertising Industry Methodology published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Atlanta, GA, Cumulus Media Inc. is the largest pure-play radio broadcaster in the U.S. with approximately 525 stations in 110 markets and nationwide radio networks serving over 4,000 stations. Cumulus is publicly traded with Crestview Radio Investors, LLC owning an estimated 27.5% interest adjusted for the exercise of penny warrants. The Dickey family owns 8.2% with Canyon Capital Advisors LLC owning roughly 11%, and the remainder being widely held. Net revenues pro forma for acquisitions and divestitures totaled approximately $1.1 billion for LTM September 30, 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's changes Outlook of Cumulus Media to Negative from Stable; affirms B1 CFR
No Related Data.

 

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