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Investing.com -- Moody's Ratings has lowered the Corporate Family Rating (CFR) of Cumulus Media (NASDAQ:CMLS) New Holdings Inc. to Caa3 from Caa1. The Probability of Default Rating (PDR) has also been downgraded to Caa2-PD from Caa1-PD. The ratings on the backed senior secured first lien notes due July 2029 and senior secured first lien term loan B due May 2029 have been downgraded to Caa3 from Caa1. The ratings on the senior unsecured notes due July 2026 and senior unsecured term loan B due March 2026 have been lowered to Ca from Caa3. The Speculative Grade Liquidity Rating (SGL) remains unchanged at SGL-3, and the outlook continues to be negative.
The downgrade follows weaker-than-anticipated performance by Cumulus, resulting in high financial leverage, a declining liquidity profile, and uncertainty over the sustainability of its capital structure.
Cumulus' Caa3 CFR reflects its high financial leverage, deteriorating liquidity, and ongoing pressures in the broadcast radio sector. Even though the company saw benefits from political advertising and double-digit growth in the digital marketing services segment in 2024, the national channel, which makes up about 40% of total revenue, continued to face pressures. Advertisers are increasingly prioritizing performance-based advertising strategies, and podcasting revenue was impacted by the loss of clients.
Cumulus' adjusted debt to EBITDA ratio increased to 10.4x in 2024 from 9.0x in 2023. Excluding one-off expenses related to a debt exchange in Q2 2024, the adjusted financial leverage was 8.8x in 2024. Moody's expects the leverage to remain in the low 10x range in 2025 due to a tapering off of political ad dollars, continued pressures in the traditional radio segment, and a decline in podcast revenue due to a $15 million revenue impact from the loss of clients. This will be partially offset by growth in the digital marketing services segment and cost reduction initiatives.
The SGL-3 rating suggests that Cumulus will maintain adequate liquidity over the next 12 months, with ABL availability and cash balances providing some cushion over the expectation for negative free cash flow and other cash needs. Cumulus has a $125 million ABL revolving credit facility, with $4.5 million in letters of credit outstanding as of 2024. The company will likely rely on the ABL facility to manage upcoming maturities of $22.7 million in Q3 2026.
The negative outlook reflects the expectation that Cumulus' leverage will remain high as operating performance continues to be challenged by the weak ad environment and ongoing headwinds facing the radio industry.
The ratings could be upgraded if Cumulus achieves positive organic revenue and EBITDA growth on a sustained basis driven by expansion in its digital businesses and improves liquidity such that sustainability of the capital structure improves. Conversely, the ratings could be downgraded if Cumulus' operating performance deteriorates further, leading to a further decline in liquidity or an increase in the probability of default.
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