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Rating Action: Moody's assigns B2 rating to OUTFRONT Media's proposed senior unsecured notes
Global Credit Research - 11 Jan 2021
New York, January 11, 2021 -- Moody's Investors Service (Moody's) assigned a B2 rating to the proposed $500 million senior unsecured note due 2029 of OUTFRONT Media Capital LLC, a subsidiary of OUTFRONT Media Inc. (OUTFRONT). The B1 corporate family rating (CFR) of OUTFRONT, the Ba1 senior secured and the B2 rating on the existing senior unsecured notes issued by the subsidiary remain unchanged. The negative outlook also remains unchanged.
The net proceeds of the $500 million senior unsecured note and cash from the balance sheet will be used to repay the $500 million senior unsecured note due 2024. Pro forma leverage will be unchanged at 8.9x as of Q3 2020 (excluding Moody's standard lease adjustment), but interest expense is projected to decline slightly while extending the maturity of a portion of OUTFRONT's debt. The rating on the existing note due 2024 will be withdrawn after repayment.
..Issuer: OUTFRONT Media Capital LLC
....Gtd Senior Unsecured Regular Bond/Debenture, Assigned B2 (LGD4)
..Issuer: OUTFRONT Media Capital LLC
....LGD Senior Secured Bank Credit Facility, Adjusted to (LGD2) from (LGD1)
OUTFRONT's B1 CFR reflects the impact from the coronavirus pandemic on outdoor advertising spending which has led lead to higher leverage and decreased operating cash flow. The smaller transit division, which had been the fastest growing division prior to the pandemic, has been impacted more severely and will take longer to recover than the billboard division. The transit division has a sizable, long term contract with the New York Metropolitan Transportation Authority (MTA) to deploy digital transit displays (including platform, subway, and railcar displays) over the next several years. OUTFRONT also has significant exposure to both New York City and Los Angeles which has increased the impact of the pandemic on operating performance. Moody's expects that OUTFRONT'S high pro forma leverage of 8.9x (excluding Moody's standard lease adjustment) as of Q3 2020 will increase further in the near term before year-over-year performance improves in Q2 2021.
OUTFRONT benefits from its market position as one of the largest outdoor advertising companies in the US with positions in all the top 25 markets and approximately 150 markets in the US and Canada. The conversion of traditional static billboards and transit displays to digital is expected to support revenue and EBITDA growth after the impact of the pandemic abates. Compared to other traditional media outlets, the outdoor advertising industry is not likely to suffer from disintermediation and benefits from restrictions on the supply of billboards which help support advertising rates and high asset valuations.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of advertising revenue from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
A governance impact that Moody's considers in OUTFRONT's credit profile is the company's relatively aggressive financial policy. Historically, OUTFRONT paid material dividends and capital expenditures that have led to negative free cash flow over the past few years. Moody's expects that OUTFRONT will be focused on preserving liquidity, as evidenced by the suspension of dividend payments in Q2 2020 but the company will continue operating as a REIT. OUTFRONT is a publicly traded company listed on the New York Stock Exchange.
Moody's expects OUTFRONT to maintain good liquidity as reflected by the speculative grade liquidity (SGL) rating of SGL-2. OUTFRONT will continue to have access to an undrawn $500 million revolver due 2024 ($2 million of LCs outstanding) and approximately $672 million in cash pro forma for the transaction as of Q3 2020 following $400 million in new preferred equity in Q2 2020. The liquidity position is projected to be sufficient to manage through the pandemic.
OUTFRONT also has an $80 million Repurchase Facility that is fully drawn. The $125 million Accounts Receivable Facility was undrawn, but was temporarily suspended in 2020 and not currently available. There is an additional $78 million of L/C facilities which had $72 million outstanding as of Q3 2020. OUTFRONT has generated good cash flow from operations prior to shareholder distributions historically, but free cash flow (FCF) was negative in 2017, 2018 and 2019 after capex, MTA equipment deployment costs, and dividends. The dividend payment was suspended to help preserve liquidity in Q2 2020. Moody's projects FCF will be relatively breakeven in the near term as lower operating cash flow is offset by reduced capex and the dividend suspension for the common shares (cash dividend payments are expected to continue on the preferred equity). Capex is projected to increase in 2021 from 2020 levels as OUTFRONT begins to recover from the pandemic and economic recession. OUTFRONT's also has a $300 million At-the-Market equity (ATM) offering program ($52 million issued in 2019, none YTD as of Q3 2020) that could be used to help fund modest acquisitions or negative FCF.
The term loan is covenant lite, but the revolver is subject to a maximum consolidated net secured leverage ratio of 4.5x compared to a ratio of 1.0x as of Q3 2020. OUTFRONT executed an amendment to its financial covenants that allows for the use of covenant EBITDA from Q2 and Q3 2019 in place of Q2 and Q3 2020 EBITDA levels, which Moody's expects will allow OUTFRONT to maintain a sufficient cushion of compliance with its covenant over the next year.
The negative outlook reflects Moody's expectation of continuing declines in OUTFRONT's year-over-year revenue and EBITDA due to the economic impact of the pandemic which will lead to higher leverage levels and decreased operating cash flow until Q2 2021. OUTFRONT's smaller transit division will continue to be the most significantly affected in the near term due to the company's exposure to New York City and will take longer to recover than the billboard division. As the pandemic subsides, Moody's expects performance will improve in 2021 as advertising spending in larger markets recovers and OUTFRONT anniversaries trough quarters in Q2 and Q3 2020. Moody's projects leverage to decline below 6x by the end of 2022 as outdoor and transit advertising revenue recover from the pandemic and from a portion of excess cash being direct to debt repayment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely due to the negative outlook and very high leverage levels. However, an upgrade could occur if leverage decreases below 5x (excluding Moody's standard adjustments) and OUTFRONT demonstrates both the desire and ability to sustain leverage below that level while maintaining a good liquidity position. Positive organic revenue growth would also be required, in addition to positive free cash flow after distributions.
The ratings could be downgraded if leverage was expected to be maintained above 6x (excluding Moody's standard adjustments). A deterioration in OUTFRONT's liquidity position, continued negative free cash flow after dividends, or inability to obtain an amendment to the financial maintenance covenant if needed could also trigger a downgrade.
OUTFRONT Media Inc. (OUTFRONT) (fka CBS Outdoor Americas Inc.) is one of the leading outdoor advertising companies with operations primarily in the US in addition to Canada. OUTFRONT was previously an operating subsidiary of CBS Corporation and in July 2014 began operating as a REIT. In 2014, OUTFRONT completed the acquisition of certain outdoor assets from Van Wagner Communications, LLC (Van Wagner) for $690 million. In 2016, the company sold its Latin America outdoor assets to JCDecaux S.A. for approximately $82 million in cash. In 2017, OUTFRONT acquired the equity interests of certain subsidiaries of All Vision LLC to expand its outdoor advertising assets in Canada for $94 million of cash and equity. Reported revenues were approximately $1.4 billion as of Q3 2020.
The principal methodology used in this rating was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Scott Van den Bosch VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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