Rating Action: Moody's affirms Townsquare Media's B2 CFR; outlook changed to negative
Global Credit Research - 23 Jul 2020
New York, July 23, 2020 -- Moody's Investors Service, ("Moody's") affirmed Townsquare Media, Inc.'s (Townsquare) B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating (PDR), Ba2 senior secured debt, and B3 senior unsecured notes ratings. The outlook was changed to negative from stable.
The negative outlook reflects the impact of the economic recession as a result of the coronavirus outbreak which Moody's expects will substantially impact radio advertising revenue in the near term and lead to higher leverage levels and lower cash outflow from operations. While Townsquare is projected to maintain sufficient liquidity, operating cash flow is projected to deteriorate significantly in the near term. As a result, Townsquare's Speculative Grade Liquidity (SGL) rating was downgraded to SGL-3 from SGL-2.
..Issuer: Townsquare Media, Inc.
.... Corporate Family Rating, Affirmed B2
.... Probability of Default Rating, Affirmed B2-PD
....Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD2)
....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)
..Issuer: Townsquare Media, Inc.
.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2
..Issuer: Townsquare Media, Inc.
....Outlook, Changed To Negative From Stable
The B2 CFR reflects Townsquare's high leverage (6.3x as of Q1 2020, excluding Moody's standard lease adjustments) and Moody's projection that leverage levels will increase substantially in the near term due to the impact of the coronavirus outbreak on the economy. The radio industry is also being negatively affected by the shift of advertising dollars to digital mobile and social media as well as heightened competition for listeners from a number of digital music providers. Secular pressures and the cyclical nature of radio advertising demand have the potential to exert substantial pressure on EBITDA from its radio assets over time. Townsquare has taken cost cutting actions during the first half of 2020 and will be focused on preserving liquidity in the near term. Townsquare's live event business will be impacted by the coronavirus outbreak, but this division accounted for less than 4% of revenue in 2019 following prior asset sales.
Townsquare has leading positions in its markets as well as its growing digital marketing solutions (Townsquare Interactive) and digital programmatic advertising platform (Townsquare Ignite) that expands its service offering. Moody's expects the Townsquare Interactive service to continue to grow as small businesses look to improve their website and digital capabilities during the pandemic, but this service is not large enough to offset declines in traditional radio. Townsquare has been focused on growing local advertising revenue in small to mid-sized markets and increasing revenue diversification with its digital product offerings. Townsquare operates in smaller markets where competition is limited as most radio broadcasters choose to operate primarily in larger markets. The geographically diversified footprint focused on small markets may support performance if some markets are less impacted by the pandemic and not subject to additional health restrictions. In contrast to traditional radio operators, executive management has diverse media experience and does not come exclusively from legacy broadcasters.
The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Townsquare of the deterioration in credit quality it has triggered, given its exposure to advertising spending, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.
A governance impact that Moody's considers in Townsquare's credit profile is the expectation of a relatively conservative financial strategy focused on debt reduction. While Moody's projects Townsquare will be focused on preserving liquidity in the near term, free cash flow is expected to be used for debt reduction as the impact of the pandemic subsides. Townsquare is a publicly traded company listed on the New York Stock Exchange, but funds managed by private equity firm, Oaktree Capital, maintain a substantial ownership position and voting control of the company.
Townsquare's liquidity is adequate as reflected in the SGL-3 rating, supported by $136 million of cash on the balance sheet as of Q1 2020 following the drawdown of the $50 million revolver facility due April 2022. However, Townsquare repaid the outstanding balance of the revolver and made a $9.9 million excess cash flow sweep payment in addition to buying back $4.5 million of notes in Q2 2020. The revolver maturity is coterminous with the term loan maturity (April 2022), but has a springing maturity six months inside the term loan maturity. Moody's expects Townsquare will be focused on extending the maturity of its debt structure in the near term. Townsquare eliminated the quarterly dividend of $2.1 million and Moody's expects the company will reduce capex ($20 million LTM Q1 2020) to help preserve liquidity. The company does not expect to be a full taxpayer in the near term given significant federal NOL's.
There are no financial maintenance covenants for the term loan B. The revolver is subject to a 3.75x maximum 1st lien leverage ratio (as defined) with no step downs and is applicable only when revolver balance exceed 30% of total commitments. Moody's projects the covenant levels will tighten in the near term and an amendment may be required to maintain full access to the revolver going forward.
The negative outlook reflects Moody's view that Townsquare will experience significant declines in revenues and EBITDA in the next few quarters due to the impact of the coronavirus outbreak on the economy and radio advertising revenue. The outlook also incorporates Moody's expectation for Townsquare's debt-to-EBITDA leverage to increase substantially to over 10x by the end of 2020 before returning to under 6x by the end of 2021 after the impact of the pandemic subsides. Political advertising revenue is projected to support results as the election approaches towards the end of 2020. An inability to extend the maturity dates of the revolver and term loan well in advance of the maturity date would likely lead to a rating downgrade.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if Moody's expects that Townsquare's leverage will be sustained above 5.75x due to underperformance, audience and advertising revenue migration to competing media platforms, or ongoing economic weakness. A free cash flow to debt ratio in the low single-digits, a weakened liquidity profile, or inability to extend the maturity date of its debt structure well in advance of its maturity date could also lead to a downgrade.
An upgrade for Townsquare is not expected in the near term due to the impact of the pandemic and Moody's projection of higher leverage in the near term. However, the ratings could be upgraded if leverage declined below 4x, as calculated by Moody's, with a good liquidity profile and a percentage of free cash flow to debt ratio of approximately 10%. Positive organic revenue growth and expanding EBITDA margins would also be required in addition to confidence that the financial sponsors would maintain financial policies consistent with a higher rating level.
Townsquare Media, Inc. owns and operates 321 radio stations and more than 330 related websites in 67 small to mid-sized markets. It also operates two digital services (Townsquare Interactive and Townsquare Ignite). Headquartered in Purchase, NY and founded in 2010, the company represents an acquisition roll up by new management of small to mid-sized market stations. Townsquare is publicly traded and the largest shareholders are prior debt holders including Oaktree Capital Management, L.P. as the controlling shareholder with majority voting power. Net revenue for the last twelve months ended March 31, 2020 totaled $431 million.
The principal methodology used in these ratings 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.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
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
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.