Moody’s Investors Service likes the way that radio group Entercom manages its finances and acquisitions, and finds nothing to be concerned about regarding its plan to acquire the Lincoln Financial Media radio stations.
Beyond the affordability of the purchase Moody’s analyst Carl Salas sees a number of positives.
The bottom line is that the deal is essentially neutral. It features one stable radio group acquiring another stable radio group. Financed via stock, cash on hand, and the tapping of a revolver, the deal is seen as credit neutral and has no effect on Entercom’s B2 Corporate Family Rating. Deal metrics are expected to keep debt in the 5.0x range.
The addition of three new major markets to its portfolio – Atlanta, Miami and San Diego — will improve Entercom’s geo-diversity, says Carl Salas of Moody’s, and the company will strengthen its position in the fourth, Denver.
Salas added, “Moody’s believes Entercom will also benefit from enhanced cash flow given the addition of acquired stations to its larger platform, the elimination of redundant corporate overhead, and the step-up in tax basis. The issuance of $27.5 million of preferred stock comes with modest amounts of annual cash payments, and we expect the company to eventually redeem the preferred shares to avoid accretion or the scheduled increase in cash payments.”
Salas praised Entercom’s discipline when it comes to M&A, “…demonstrated by the leverage neutral acquisition of KBLX-FM in San Francisco for $25 million in 2012 and track record for passing on potential acquisitions including Citadel Broadcasting in 2011, certain assets of Lincoln Financial Media in 2007, and ABC Radio in 2005.”
