Ratings assigned to $3.025 billion of debt
New York, April 25, 2011 -- Moody's Investors Service ("Moody's") upgraded Cumulus Media, Inc.'s
("Cumulus") Corporate Family Rating ("CFR") to B1 from Caa1
due to the company's pending acquisition of CMP Susquehanna Corp.
("CMP") in the second quarter of 2011 followed by the announced
$2.4 billion acquisition of Citadel Broadcasting Corporation
("Citadel") later this year. Transactions will be financed
with approximately $3 billion of new debt facilities as well as
up to $500 million of new equity. Moody's assigned a B3
(LGD6-90%) rating to the company's proposed $610
million senior unsecured notes due 2019 which will be used to refinance
current outstandings under Cumulus' senior secured credit facilities.
Moody's also assigned Ba3 (LGD3-38%) ratings to the
proposed $375 million senior secured revolver and $2,040
million senior secured term loan B which will be used to refinance existing
debt of CMP and Citadel. Ratings for existing facilities will be
withdrawn upon closing of each of the debt issuances.
Moody's assigned a Speculative Grade Liquidity Rating 2 (SGL-2)
based on expectations of good liquidity over the next twelve months.
These actions conclude the review for upgrade that began in February 2011.
The rating outlook is stable.
..Issuer: Cumulus Media, Inc.
....Corporate Family Rating, Upgraded
to B1 from Caa1
....Probability of Default Rating, Upgraded
to B1 from Caa2
....$610 million Senior Unsecured Notes,
B3 (LGD6-90%) - expected to be assumed by Cadet Holding
Corporation when acquisition closes
..Issuer: Cadet Holding Corporation
$375 million Senior Secured Revolver, Ba3 (LGD3-38%)
$2,040 million Senior Secured Term Loan, Ba3
To Be Withdrawn As Applicable Transactions Close:
Issuer: Cumulus Media, Inc.
$20 million Senior Secured Revolver, Caa1 (LGD3-34%)
$648 million Senior Secured Term Loan, Caa1 (LGD3-34%)
Issuer: CMP Susquehanna Corp.
... PDR, Caa1
$100 million Revolver due 2012, Caa1 (LGD3-48%)
$700 million Term Loan due 2013, Caa1 (LGD3-48%)
...$250 million Sr Subordinated Notes due
2014, Caa3 (LGD6-96%)
Issuer: Citadel Broadcasting Corporation
$150 million Sr Sec Revolver, Baa3 (LGD2-15%)
... $350 million Sr Sec Term Loan B due 2016,
$762 million Sr Sec Term Loan due 2015, Ba2 (LGD3-33%)
$400 million 7.75% Sr Notes due 2018,
Outlook is Stable
The B1 corporate family rating reflects Cumulus' high pro forma
debt-to-EBITDA leverage of approximately 5.7x estimated
for 12/31/2011 (including Moody's standard adjustments and treating
75% of preferred shares as debt, if issued) and assuming
selling shareholders of Citadel require the maximum amount of cash payments,
instead of stock. Ratings also reflect the cyclical nature of radio
advertising demand evidenced by the revenue declines suffered by radio
broadcasters during the recent recession, fragmentation of media
outlets, and potential challenges associated with a large acquisition
(Citadel has $740 million in revenue and 225 stations compared
to $445 million in revenue and 346 stations for the combined Cumulus
and CMP). Ratings are supported by the company's national
scale, geographic and market diversity as well as expected 40%
EBITDA margins. Post-transactions, Cumulus is expected
to generate more than $300 million of annual free cash flow,
or 10% of debt balances, from a well-clustered radio
station portfolio that is effectively diversified by programming formats
and audience demographics. Although revenues are expected to grow
in the low to mid-single digit range through 2012, planned
cost reductions will contribute to increasing free cash flow generation
and debt reduction resulting in improved credit metrics. "Management
has a multi-year track record of refining its proprietary technology
platform and has been successful in driving down costs resulting in industry
leading EBITDA margins. Management also confirms its strategy to
reduce debt balances and targets reported gross debt-to-
EBITDA ratios of 4.0x or better to gain operational and financial
flexibility. In Moody's opinion, Cumulus' experienced
management team and commitment to reduce debt balances provide rating
support," stated Carl Salas, a Moody's Vice President and
Moody's believes the acquisitions will receive FCC approval and
be completed by year end 2011 based on minimal market overlap in 6 markets.
Approximately 13 stations have been identified for transfer to a trustee.
Ratings assume successful execution; however, in the unlikely
event the Citadel acquisition is not completed and there are no equity
injections, the proposed $375 million revolver and $2,040
term loan would not be needed, and ratings could be downgraded given
debt-to-EBITDA leverage of approximately 6.7x for
the Cumulus borrowing group (including Moody's standard adjustments
and assuming payment of Cumulus' portion of the termination fee).
The stable outlook reflects Moody's view that the acquisitions of
CMP Susquehanna and Citadel will be completed in the expected time frame
and that revenue and EBITDA will track along management's plan including
success in achieving most of its synergy targets. "The outlook
also incorporates Moody's expectation that Cumulus will maintain
good liquidity and use free cash flow to reduce revolver or term loan
balances resulting in debt-to-EBITDA leverage remaining
below 6.0x (including Moody's standard adjustments) with
free cash flow-to debt ratios of more than 9% in the near
term. Financial metrics are expected to improve thereafter,
consistent with management's target of 4.0x reported gross
debt-to-EBITDA (or approximately 4.1x including Moody's
standard adjustments)," added Salas.
Ratings could be upgraded if debt-to-EBITDA ratios are sustained
below 4.5x (including Moody's standard adjustments) with
good liquidity including free cash flow-to-debt ratios remaining
above 10%. Absent sizable acquisitions, debt balances
would also need to remain below $2.4 billion to accommodate
likely EBITDA fluctuations in an economic downturn.
Ratings could be downgraded if debt-to-EBITDA ratios are
sustained above 6.0x (including Moody's standard adjustments)
due to the inability to achieve planned synergies or due to deterioration
in performance as a result of increased competition in key markets,
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 or dividends result
in debt-to-EBITDA ratios being sustained above 6.0x
or if there is deterioration in liquidity. In the unlikely scenario
the Citadel acquisition is not completed as planned and an equity injection
is not funded, the proposed $375 million revolver and $2,040
million term loan would not be needed, and the CFR would likely
be downgraded given potential debt-to-EBITDA ratios of approximately
6.7x for the Cumulus borrowing group (including Moody's standard
adjustments and assuming payment of Cumulus' portion of the termination
fee), a lower revenue base, as well as the absence of broader
geographic and market diversification. In addition, coverage
ratios would be weaker with approximately 1.8x EBITDA coverage
of interest expense compared to approximately 3.2x under the Citadel
acquisition scenario, and the committed revolver facility due May
2012 would be relatively small at only $20 million. Ratings
on the new $610 million of Senior Unsecured Notes could potentially
The principal methodology used in rating Cumulus Media was the Global
Broadcast Industry Methodology, published June 2008.
Headquartered in Atlanta, Georgia, Cumulus Media Inc.
("Cumulus") is one of the nation's largest radio broadcasting companies,
currently operating approximately 312 radio stations in 60 mid-sized
markets. In 1Q2011 the company announced the acquisition of the
remaining 75% of CMP Susquehanna Corporation ("CMP")
it did not already own followed by the announcement that it entered into
a definitive agreement to acquire Citadel Broadcasting Corporation ("Citadel").
Pro forma for these two acquisitions, Cumulus will be the second
largest U.S. radio group with approximately 571 properties
and $1.2 billion in station and network revenues as of December
2010. There will be one class of common shares with approximately
18%-27% to be owned by Crestview Partners,
7%-10% owned by the Dickey family, and the
remainder broadly held among existing Cumulus and CMP shareholders and
former Citadel shareholders.
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
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Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Cumulus CFR to B1 and assigns B3 ratings to proposed senior unsecured notes and Ba3 ratings to proposed credit facilities
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