Moody’s disappointed in LBI radio performance


Moody’s Investors ServiceMoody’s Investors Service has downgraded the credit ratings of LBI Media (Liberman Broadcasting). The ratings agency said Q4 results were below expectations, particularly for radio.

LBI had projected that revenues would grow for both radio and television in 2012 as it reported that 2011 revenues rose 1.5% in 2011 to $117.5 million, with radio down and TV up. But adjusted EBITDA declined 22.5% to $27.7 million.

In Q4 TV revenues rose 8% to $16.6 million, but radio revenues fell 12% to $13.5 mission. Adjusted EBITDA dropped 60% overall to $3.7 million. “While our radio stations experienced a challenging fourth quarter and full year in 2011, we are confident that we can return our radio group to its historic industry leading performance,” said CEO Lenard Liberman.

Moody’s, however, downgraded LBI Media’s Corporate Family Rating (CFR) and Probability-of-Default Rating (PDR) each to Caa2 from Caa1 and “downgraded debt instruments accordingly,” the ratings agency said. “The downgrades follow the company’s earnings release for the 4th quarter of 2011 and reflect weakened liquidity, revenue and EBITDA declines for radio stations compounded by EBITDA declines for television operations, and Moody’s view that LBI’s capital structure is unsustainable. The rating outlook was changed to Negative from Stable,” said Moody’s, which rates approximately $439 million of LBI’s debt.

“The Caa2 CFR reflects Moody’s view that the current capital structure is unsustainable and liquidity is week. On April 2, 2012, LBI reported 4th quarter financial results which were well below Moody’s expectations for consolidated EBITDA and free cash flow. Management attributed the decrease in radio revenue largely to a drop in audience ratings for certain stations. In addition, investments in television programming intended to increase audience ratings contributed to operating losses for television operations. More recently, consolidated EBITDA declines accelerated in 4Q2011 and contributed to a 17% adjusted EBITDA decline for radio operations for the 12 months ended December 2011 while television operations suffered a 45% decline in adjusted EBITDA for FY2011, with all of the decline reported in 4Q2011. Given the 22% decline in LBI’s consolidated EBITDA and the $41 million increase in funded debt balances, as a result of the 1Q2011 issuance of the senior secured notes due 2019, debt-to-EBITDA ratios have become unsustainable (approximately 17.2x as of December 2011, including Moody’s standard adjustments) and interest coverage ratios have weakened (approximately 0.6x EBITDA/Interest Expense). Ratings also reflect uncertainties related to management’s ability to stop deterioration in both the radio and television segments and the potential for weak operating performance to continue into the remainder of 2012 leading to further strains on liquidity. Although the $50 million revolver (unrated) was undrawn at FYE2011, approximately $5.4 million is currently drawn and management expects outstandings to increase to approximately $17.9 million in2Q 2012 given planned advances earmarked to fund more than $12 million of interest payments due in April 2012. The company stated that it is in the process of selling two non-core radio stations which may bring in up to $3.1 million of cash, and other non-core assets are being reviewed for divestiture. Despite management’s efforts to restore audience ratings for radio stations and despite investments in television programming and expanded network reach, Moody’s believes weakened liquidity may require a restructuring of debt facilities over the near term in the absence of a meaningful equity injection or asset sales,” said the analysis from Moody’s.

“The negative outlook incorporates Moody’s view that, notwithstanding potential revenue growth for radio or television operations over the rating horizon, financial leverage will remain very high (debt-to-EBITDA ratios above 12x) and liquidity will weaken further given the inability to generate positive free cash flow in the near term and the eventual need to address the October 2013 maturity of the 11% senior discount notes at the holding company ($41.8 million outstanding),” said the ratings agency.

Moody’s Downgrades:

Issuer: LBI Media, Inc.

..Corporate Family Rating: Downgraded to Caa2 from Caa1

..Probability of Default Rating: Downgraded to Caa2 from Caa1

….$220 Million 9.25% Senior Secured 1st Lien Notes due April 2019: Downgraded to B3, LGD2 — 27% from B2, LGD3 — 31%

….$228.8 Million 8.5% Senior Subordinated Notes due August 2017: Downgraded to Caa3, LGD5 — 75% from Caa2, LGD5 — 81%

Outlook Actions:

….Outlook, Changed To Negative From Stable