Rating Action: Moody's affirms Urban One's B3 CFR and assigns B3 rating to proposed senior secured note; outlook stable
Global Credit Research - 07 Jan 2021
New York, January 07, 2021 -- Moody's Investors Service, ("Moody's") affirmed Urban One, Inc.'s ("Urban One") B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) and assigned a B3 rating to the proposed $825 million senior secured notes. The outlook was changed to stable from negative.
The net proceeds of the transaction and cash on the balance sheet will be used to refinance all outstanding debt. The change in the outlook to stable reflects the extension of Urban One's debt maturities to 2028 as well as the reduction in debt from cash on the balance sheet. Pro forma leverage is expected to decrease to 7.3x from 7.8x as of Q3 2020 as a result of the approximately $63 million in debt repayment. Urban One's Speculative Grade Liquidity (SGL) rating was upgraded to SGL-2 from SGL-3 due to the improved liquidity position. The ratings on the existing debt will be withdrawn after repayment.
..Issuer: Urban One, Inc.
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
..Issuer: Urban One, Inc.
....GTD Senior Secured Regular Bond/Debenture, Assigned B3 (LGD4)
..Issuer: Urban One, Inc.
.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3
..Issuer: Urban One, Inc.
....Outlook, Changed To Stable From Negative
Urban One's B3 CFR reflects the high, albeit improving, pro forma leverage level of 7.3x as of Q3 2020 (excluding Moody's standard lease adjustments) and the impact of the coronavirus pandemic and recession on advertising revenue. The radio industry is being particularly hard hit by the pandemic and 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 performance over time in the radio division.
Urban One benefits from diversified operations in radio, cable TV, syndicated programming, and digital media that primarily targets African-American and urban consumers as well as a minority ownership position in the MGM National Harbor gaming resort which has helped reduce the impact of the pandemic. Urban One has diversified its operations over the past several years through investments in Reach Media and TV One, completing the company's transition from a pure play radio operator to a more diversified media company.
While leverage remains high, the diversified operations reduce the volatility in performance and the shifting business mix of Urban One to cable TV is expected to partly mitigate the impact of the secular pressures of the radio industry over time. Performance is also expected to benefit from advertiser interest in reaching Urban One's core customer base. The cable TV division is supported by carriage fees from cable and satellite companies and lower programming costs in 2020, although content costs are expected to increase in 2021. The cable division faces challenges from strong competition for its primary audience and the transition of media consumption to OTT services.
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 consideration Moody's considers in Urban One's credit profile is the expectation of a more moderate financial policy going forward. Since 2011, the company has issued debt to fund increasing ownership interests of partially held operations that include Reach Media and TV One, which has diversified operations. In the past few years, Urban One has pursued a more moderate financial policy and has applied most of its free cash flows to debt repayment. Moody's expects a portion of Urban One's cash flow will continued to be directed to debt repayment going forward. The Chairperson and President are both family members and maintain voting control as well as a significant ownership position in the company.
The SGL-2 rating reflects Moody's expectation of good liquidity with a pro forma cash balance of approximately $33 million and a free cash flow to debt percentage of 8% as of LTM Q3 2020. Urban One intends to replace its existing $37.5 million ABL facility (not rated) with a new $50 million ABL facility in the near term which is projected to be undrawn at closing. Urban One's existing debt required elevated levels of amortization payments, but the company will not have required amortization payments pro forma for the transaction. Urban One receives an annual distribution from its ownership position in the MGM National Harbor Casino, although the amount will be reduced as a result of the impact of the pandemic. Urban One's note will not be subject to financial covenants, but the new ABL facility is expected to be subject to a fixed coverage test.
The stable outlook reflects the refinancing of Urban One's outstanding debt with no near term debt maturities as well as Moody's expectation that leverage will decline below 7x in the near term. Political ad spending, which supported growth in Q4 2020, will decline materially in Q4 of 2021 given the election cycle. In addition, higher content costs are expected to weigh on results in 2021 as Urban One resumes normal programming in the cable division. As a result, Moody's expects good performance in Q4 2020 driven by strong political advertising spend to be followed by flat to negative EBITDA in 2021, but leverage is projected to remain slightly below 7x at the end of 2021. Growth is projected to improve in 2022 and lead to additional deleveraging to the low to mid 6x range by year end 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Urban One's ratings could be upgraded if debt-to-EBITDA is expected to be sustained below 6.0x, supported by positive organic growth in the radio and cable network operations. A good liquidity position, including mid-single digit percentage free cash flow-to-debt would also be required.
Ratings could be downgraded if economic weakness or increased competition in one or more key markets results in debt-to-EBITDA sustained above 7.0x. A weakened liquidity position would also lead to a downgrade.
Urban One, Inc., formerly known as Radio One, Inc., headquartered in Silver Spring, MD, is an urban oriented multi-media company that operates or owns interests in radio broadcasting stations (35% of revenue as of Q3 2020 generated by 61 stations in 14 markets), TV One, a cable television network (49% of revenue), an 80% ownership in Reach Media (8% of revenue), and ownership of Interactive One, its digital platform, as well as other internet based properties (8% of revenue), largely targeting an African-American and urban audience. The Chairperson, Catherine L. Hughes, and President, Alfred C. Liggins III (Chairperson's son), maintain voting control and hold a significant ownership position. The company reported consolidated revenue of $369 million as of the LTM ended Q3 2020.
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.
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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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