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Rating Action: Moody's affirms Urban One's B3 CFR; outlook changed to negative
Global Credit Research - 09 Jul 2020
New York, July 09, 2020 -- 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). The $350 million senior secured term loan and $350 million senior secured notes ratings were downgraded to B3 from B2. The outlook was changed to negative from stable.
The change in the outlook to negative reflects the impact of the coronavirus outbreak on the economy which Moody's expects will substantially reduce radio advertising revenue in the near term and lead to significantly higher leverage levels and lower cash from operations. The outlook also considers the need to refinance approaching debt maturities in the near term. The downgrade of the senior secured note and term loan ratings reflect the reduced amount of subordinated debt outstanding in the capital structure. Urban One's Speculative Grade Liquidity (SGL) rating remains unchanged at SGL-3.
..Issuer: Urban One, Inc.
....Senior Secured Bank Credit Facility, Downgraded to B3 (LGD3) from B2 (LGD3)
....Senior Secured Regular Bond/Debenture, Downgraded to B3 (LGD3) from B2 (LGD3)
Affirmations: ..Issuer: Urban One, Inc.
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
..Issuer: Urban One, Inc.
....Outlook, Changed To Negative From Stable
Urban One's B3 CFR reflects the high leverage level of 7.1x 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 has been 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. Moody's expects that Urban One will take aggressive cost cutting actions and continue to be focused on preserving liquidity in the near term.
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 MGM National Harbor gaming resort which helps 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 diversified media company. The cable TV division is supported by carriage fees from cable and satellite companies and lower programming costs in the near term, but faces challenges from strong competition for its primary audience and the transition of media consumption to OTT services. While leverage is 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.
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 Urban One 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 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, and following its 2015 purchase of Comcast's remaining interest in TV One, represents Urban One's efforts to diversify 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. The Chairperson and President are both family members and maintain voting control as well as a significant ownership position in the company.
The SGL-3 Speculative Grade Liquidity rating reflects Moody's expectation of an adequate liquidity position with a cash balance of $66 million at March 31, 2020 and free cash flow as a percentage of debt of 6%. Urban One has an ABL facility that was previously upsized to $37.5 million which matures in April 2021 with $27.5 million drawn as of Q1 2020. Other uses of cash over the last three quarters of 2020 include $2.5 million of required amortization on the term loan and $14.4 million of required amortization on the 2018 Unsecured Credit Facility ($22.5 million in total required amortization in 2021).
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 currently has an adequate cushion of compliance on the term loan financial covenants including a 5.85x senior secured net leverage test compared to 4.6x and a 1.25x interest coverage test compared to 2.0x as of Q1 2020. While Urban One has an adequate cushion currently, Moody's projects the level of compliance will tighten as EBITDA declines in the near term.
The negative outlook reflects Moody's view that Urban One will experience significant declines in revenues and EBITDA in the next few quarters due to the economic recession driven by the coronavirus outbreak and the impact on radio advertising revenue. The outlook also incorporates Moody's expectation for the company's debt-to-EBITDA leverage to increase substantially in the near term as well as the need to refinance the debt structure in advance of approaching debt maturities. Political advertising revenue should support results as the election approaches towards the end of 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although not likely in the near term given the expected weakness in the economy, the ratings for Urban One could be upgraded if debt-to-EBITDA is 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, and the refinancing of all near term debt maturities would also need to be completed.
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. The inability to refinance approaching maturities well in advance of the maturity date, a likely violation of a financial covenant, or a weakened liquidity positions 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 (40% of revenue as of Q1 2020 generated by 61 stations in 14 markets), TV One, a cable television network (43% of revenue), an 80% ownership in Reach Media (10% of revenue), and ownership of Interactive One, its digital platform, as well as other internet based properties (7% 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 $433 million as of the LTM ended Q1 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.
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.
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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.
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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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