Moody's Raises Outlook on Radio One (ROIAK) to Positive
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Moody's Investors Service changed the rating outlook of Radio One, Inc. (Nasdaq: ROIAK) to positive from stable. The positive outlook reflects improved operating performance in the core broadcasting segment and greater dividends from TV One resulting in EBITDA growth and better credit metrics. In addition, Moody's assigned an SGL -- 3 Speculative Grade Liquidity (SGL) Rating and affirmed the Caa1 Corporate Family Rating, Caa1-PD Probability of Default Rating and all other debt instrument ratings.
Affirmed:
..Issuer: Radio One, Inc.
.Corporate Family Rating: Affirmed Caa1
.Probability of Default Rating: Affirmed Caa1-PD
$25 million Priority Sr Secured Revolving Credit Facility due 2015: Affirmed B1, LGD1 -- 1% (from LGD1 -- 0%)
$374 million Sr Secured Term Loan due 2016: Affirmed B2, LGD2 -- 26% (from LGD2 -- 27%)
$327 million of 12.5% Senior Subordinated Notes due 2016: Affirmed Caa2, LGD5 -- 81%
Assigned:
..Issuer: Radio One, Inc.
.Speculative Grade Liquidity (SGL) Rating: Assigned SGL -- 3
Outlook Actions:
..Issuer: Radio One, Inc.
....Outlook, Changed to Positive from Stable
RATINGS RATIONALE
Radio One's Caa1 corporate family rating (CFR) reflects high debt-to-EBITDA leverage of approximately 6.8x estimated for the restricted group for the 12 months ended December 31, 2013 (including Moody's standard adjustments, plus TV One dividends) and mid single digit percentage free cash flow-to-debt ratios. Improved core broadcast operating performance along with increased dividends from TV One will result in EBITDA growth of more than 25% for FY2013 and improved debt-to-EBITDA of roughly 6.8x (including Moody's standard adjustments, plus TV One dividends) at FYE2013 compared to 8.6x as of FYE2012. We believe the company will track overall performance for the radio broadcast industry with flat to low single digit percentage revenue growth supported by an increase in demand for political advertising particularly in the second half of 2014. An improving economic environment in key markets and dividends from TV One at or above current levels will result in debt-to-EBITDA leverage ratios remaining below 7.0x over the next 12-18 months. We continue to be concerned that an unexpected decline in broadcasting performance would result in Radio One increasingly relying on dividends from TV One, an unrestricted entity, to fund debt service and to remain in compliance with financial covenants. Ratings incorporate ongoing media fragmentation and the cyclical nature of radio advertising demand evidenced by the revenue declines suffered by radio broadcasters during the past recession and the sluggish growth following the downturn. Ratings are supported by the company's presence in attractive large markets and TV One's growing dividend capacity. An unexpected decline in EBITDA could result in a covenant breach and additional downward pressure on ratings. We expect the company to maintain an EBITDA cushion to financial covenants of at least 5% over the next 12 months, with the potential for deferred dividends from TV One increasing the cushion if necessary. Liquidity is adequate with expected cash balances for the restricted group of a minimum $15 million over the next 12 months, more than 90% of availability under its $25 million revolver facility, and no significant debt maturities until 2016.
The positive outlook reflects our belief that radio operations will benefit from stable advertising demand in key markets and that Interactive One will generate positive EBITDA over the next 12-18 months. In addition, the outlook incorporates the company being able to increase dividends from TV One above 2013 levels ($18.5 million YTD September 30, 2013), if desired. We expect leverage ratios will improve due to EBITDA growth combined with some debt reduction and liquidity will remain adequate with positive free cash flow as well as mid single digit percentage EBITDA cushion to financial covenants. The positive outlook does not incorporate leverage being sustained above current levels due to debt financed acquisitions or increased ownership in TV One.
Ratings could be upgraded if debt-to-EBITDA leverage ratios are sustained below 7.0x (incorporating Moody's standard adjustments, plus TV One dividends) supported by good advertising demand and a supportive economic environment in key markets. Enhanced liquidity including mid single digit percentage free cash flow-to-debt ratios and increasing EBITDA cushion to financial maintenance covenants will also be required for an upgrade. A ratings downgrade is not likely given the positive outlook; however, the outlook can be changed to stable if revenue and EBITDA do not track expectations for 2014 or if increased competition in one or more of the company's four key markets results in higher debt-to-EBITDA leverage ratios. Increased debt levels to fund discretionary items including share repurchases or an increase in ownership of TV One could negatively impact ratings, particularly if these actions impair liquidity or reduce the company's EBITDA cushion to financial covenants.
The principal methodology used in this rating was the Global Broadcast and Advertising Related Industries 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.
Affirmed:
..Issuer: Radio One, Inc.
.Corporate Family Rating: Affirmed Caa1
.Probability of Default Rating: Affirmed Caa1-PD
$25 million Priority Sr Secured Revolving Credit Facility due 2015: Affirmed B1, LGD1 -- 1% (from LGD1 -- 0%)
$374 million Sr Secured Term Loan due 2016: Affirmed B2, LGD2 -- 26% (from LGD2 -- 27%)
$327 million of 12.5% Senior Subordinated Notes due 2016: Affirmed Caa2, LGD5 -- 81%
Assigned:
..Issuer: Radio One, Inc.
.Speculative Grade Liquidity (SGL) Rating: Assigned SGL -- 3
Outlook Actions:
..Issuer: Radio One, Inc.
....Outlook, Changed to Positive from Stable
RATINGS RATIONALE
Radio One's Caa1 corporate family rating (CFR) reflects high debt-to-EBITDA leverage of approximately 6.8x estimated for the restricted group for the 12 months ended December 31, 2013 (including Moody's standard adjustments, plus TV One dividends) and mid single digit percentage free cash flow-to-debt ratios. Improved core broadcast operating performance along with increased dividends from TV One will result in EBITDA growth of more than 25% for FY2013 and improved debt-to-EBITDA of roughly 6.8x (including Moody's standard adjustments, plus TV One dividends) at FYE2013 compared to 8.6x as of FYE2012. We believe the company will track overall performance for the radio broadcast industry with flat to low single digit percentage revenue growth supported by an increase in demand for political advertising particularly in the second half of 2014. An improving economic environment in key markets and dividends from TV One at or above current levels will result in debt-to-EBITDA leverage ratios remaining below 7.0x over the next 12-18 months. We continue to be concerned that an unexpected decline in broadcasting performance would result in Radio One increasingly relying on dividends from TV One, an unrestricted entity, to fund debt service and to remain in compliance with financial covenants. Ratings incorporate ongoing media fragmentation and the cyclical nature of radio advertising demand evidenced by the revenue declines suffered by radio broadcasters during the past recession and the sluggish growth following the downturn. Ratings are supported by the company's presence in attractive large markets and TV One's growing dividend capacity. An unexpected decline in EBITDA could result in a covenant breach and additional downward pressure on ratings. We expect the company to maintain an EBITDA cushion to financial covenants of at least 5% over the next 12 months, with the potential for deferred dividends from TV One increasing the cushion if necessary. Liquidity is adequate with expected cash balances for the restricted group of a minimum $15 million over the next 12 months, more than 90% of availability under its $25 million revolver facility, and no significant debt maturities until 2016.
The positive outlook reflects our belief that radio operations will benefit from stable advertising demand in key markets and that Interactive One will generate positive EBITDA over the next 12-18 months. In addition, the outlook incorporates the company being able to increase dividends from TV One above 2013 levels ($18.5 million YTD September 30, 2013), if desired. We expect leverage ratios will improve due to EBITDA growth combined with some debt reduction and liquidity will remain adequate with positive free cash flow as well as mid single digit percentage EBITDA cushion to financial covenants. The positive outlook does not incorporate leverage being sustained above current levels due to debt financed acquisitions or increased ownership in TV One.
Ratings could be upgraded if debt-to-EBITDA leverage ratios are sustained below 7.0x (incorporating Moody's standard adjustments, plus TV One dividends) supported by good advertising demand and a supportive economic environment in key markets. Enhanced liquidity including mid single digit percentage free cash flow-to-debt ratios and increasing EBITDA cushion to financial maintenance covenants will also be required for an upgrade. A ratings downgrade is not likely given the positive outlook; however, the outlook can be changed to stable if revenue and EBITDA do not track expectations for 2014 or if increased competition in one or more of the company's four key markets results in higher debt-to-EBITDA leverage ratios. Increased debt levels to fund discretionary items including share repurchases or an increase in ownership of TV One could negatively impact ratings, particularly if these actions impair liquidity or reduce the company's EBITDA cushion to financial covenants.
The principal methodology used in this rating was the Global Broadcast and Advertising Related Industries 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.
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