S&P Revises Cumulus Rating to "Stable."
On Friday, the Standard & Poor's Ratings Services revised its rating outlook on Cumulus to "stable" from positive. All ratings on the company, including the 'B' corporate credit rating, were affirmed. The outlook revision to stable reflects Cumulus' still high debt leverage, underperformance across several markets, weak long-term fundamentals in radio advertising, and a thin margin of compliance with its total debt leverage financial covenant.
The S&P report says, "The 'B' corporate credit rating reflects the company's very high leverage following the August 2011 acquisition of the remaining stake in Cumulus Media Partners and the September 2011 acquisition of Citadel. We consider the company's business risk profile as "fair" (as per our criteria), because of the company's healthy EBITDA margin and discretionary cash flow generation. The company's "highly leveraged" financial risk profile is characterized by very high post-acquisition adjusted leverage of about 7.4x (including preferred stock), pro forma for synergies anticipated in the third quarter of 2012. We see the potential for weak industry fundamentals to result in revenue erosion over the intermediate-to-long term."
"In the second half of the year, we expect revenue to be flat and EBITDA to grow at a high-single-digit percentage rate due to the realization of cost synergies. We expect that an influx in political advertising revenue will offset a low-single-digit revenue decline in core advertising revenue. Our base case scenario assumes that revenue will decline at a low-single-digit rate in 2013 because of lower political advertising revenue, and pressures on ad rates and margins from traditional and nontraditional media. We believe EBITDA could decline at a low- to mid-single-digit percentage rate in 2013 as additional synergies become more difficult to identify. Although digital represents a growth opportunity for Cumulus, it is such a small portion of the company's revenue that we don't anticipate it will be much of a driver over the intermediate term. We expect the EBITDA margin to contract by up to 100 basis points in 2013, to the low-30% area (which is still better than most peers) because of lower revenue and ongoing investments in sales, technology, content, and the SweetJack social commerce business. Longer term, we see further risks to radio advertising from traditional and nontraditional media, which could put downward pressure on ad rates and margins."
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