S&P Downgrades Spanish Broadcast (SBSA) to 'CCC'; Outlook Negative

S&P Global Ratings said today that it lowered its corporate credit rating on Spanish Broadcasting System Inc. (Nasdaq: SBSA)(SBS) to 'CCC' from 'CCC+'. The rating outlook is negative.

At the same time, we lowered our issue-level ratings on the company's 12.5% senior secured notes due 2017[?] to 'CCC' from 'CCC+'. The '3' recovery rating remains unchanged, indicating our expectation for meaningful recovery (50%-70%; upper half of the range) of principal in the event of a payment default.

"The downgrade reflects our view that SBS will not be able to repay its 12.5% notes due April 2017, given its inability to incur new debt due to debt incurrence limitations from its preferred stock," said S&P Global Ratings credit analyst Jawad Hussain. The limitation occurred after the company failed to repurchase the preferred stock in 2013 when it was were required to do so. If the company is unable to amend this restriction and refinance its 12.5% notes or generate enough spectrum sale proceeds to repay the notes, we believe it will face a payment default in April 2017 when the notes are due. Our 'CCC' corporate credit rating reflects the significant refinancing risk and tightening liquidity the company faces.

"The negative rating outlook reflects the potential for a downgrade if SBS is unable to successfully change the preferred stock terms to allow for additional debt incurrence, or if it's unable to raise enough proceeds in the spectrum auction to repay the notes maturing in April 2017," said Mr. Hussain.

We could downgrade the company if it is unable to refinance or repay the note due in April 2017 by the end of this year. We could also lower the corporate credit rating if the company doesn't generate enough proceeds in the spectrum auction to allow it to either repay its outstanding notes or come to an agreement with its preferred stockholders to incur additional debt to refinance the 2017 notes.

We could revise the outlook to stable or upgrade SBS if the company is able to generate enough proceeds in the spectrum auction to allow it to either repay its outstanding notes or if it reaches an agreement with its preferred stockholders to incur additional debt to refinance its 2017 notes, which would eliminate the likelihood of default over the following 12 months.

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