Entercom Communications Corp. Subsidiary's $300 Million Second-Lien Secured Notes Due 2027 Rated 'B-' (Recovery: '6')


Rating Action Summary:

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NEW YORK (S&P Global Ratings) April 22, 2019--S&P Global Ratings today assigned its 'B-' issue-level rating and '6' recovery rating to the proposed $300 million second-lien senior secured notes due 2027 issued by Philadelphia-based radio broadcaster Entercom Communications Corp.'s subsidiary Entercom Media Corp. The '6' recovery rating indicates our expectation for negligible (0%-10%; rounded estimate: 0%) recovery for lenders in the event of a payment default.
At the same time, we raised our issue-level rating on the company's outstanding first-lien senior secured credit facilities to 'BB' from 'BB-' and revised the recovery rating to '1' from '2'. The '1' recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 95%) recovery for lenders in the event of a payment default.
We raised our issue-level rating on Entercom's outstanding first-lien senior secured credit facilities, including its revolving credit facility and term loan, to reflect our expectation that the company will reduce the amount of first-lien debt in its capital structure by $400 million. Specifically, we anticipate that the company will use the proceeds from the proposed second-lien notes, along with cash from its revolver and balance sheet, to reduce its outstanding B-1 term loan to $892 million from $1,292 million.
Entercom also plans to amend the 4x maximum consolidated net secured leverage ratio covenant on the facility to a 4x maximum consolidated net first-lien leverage ratio. We estimate that the company will have headroom of over 30% under the revised covenant because of the reduction in its first-lien debt.
We expect Entercom's adjusted net debt to EBITDA to decline to 4.6x-4.8x in 2019, from 6.1x as of Dec. 31, 2018, because of a decline in its restructuring costs, lower operating costs due to the realization of cost synergies, and a stabilization in its revenue. However, we could lower our issuer credit rating on the company if we expect that its leverage will remain elevated above 5x over the next six to 12 months due to lower-than-expected revenue growth or a delay in the realization of the synergies.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
  • Entercom's proposed capital structure will comprise a $250 million senior secured revolving credit facility maturing in 2022, a first-lien senior secured term loan B maturing in 2024 ($892 million outstanding), $300 million of second-lien senior secured notes due 2027, and $400 million of senior unsecured notes due 2024.
  • The first-lien senior secured credit facilities, including the revolving credit facility and term loan, rank pari passu and are secured by a first-priority security interest in substantially all (subject to exceptions) of the borrower's and the guarantor's tangible and intangible assets.
  • The second-lien senior secured notes are secured by a second-priority security interest on the collateral securing the first-lien credit facilities.
  • All secured debt are guaranteed on a joint and several basis by all current and future wholly owned domestic subsidiaries of Entercom Media Corp, subject to customary exceptions.
  • Although broadcast licenses cannot be used as collateral, we view the pledge of the stock of the license-holding subsidiaries as having considerable value due to the scarcity of Federal Communications Commission (FCC) licenses.
Simulated default assumptions
  • Our simulated default scenario contemplates increased competition in the company's major markets, heightened secular pressure from alternative media, and a cyclical downturn in advertising. This would cause the company's cash flow to decline to the point that it cannot cover its fixed charges (interest expense, required amortization, and minimum maintenance capital expenditure), eventually leading to a default in 2023.
  • Other default assumptions include an 85% draw on the revolving credit facility, LIBOR rises to 2.5%, the spread on the revolving credit facility rises to 5% as covenant amendments are obtained, and all debt includes six months of prepetition interest.
  • We have valued Entercom on a going-concern basis using a 6x multiple of our projected emergence EBITDA. This multiple is in line with those that we use for radio broadcasters of a similar scale.
Simplified waterfall
  • EBITDA at emergence: $195 million
  • EBITDA multiple: 6x
  • Gross recovery value: $1.1 billion
  • Net recovery value for waterfall after administrative expenses (5%): $1.17 billion
  • Obligor/nonobligor valuation split: 100%/0%
  • Estimated first-lien senior secured debt: $1.14 billion
  • Value available for first-lien senior secured debt: $1.11 billion
  • --Recovery expectations: 90%-100% (rounded estimate: 95%)
  • Estimated second-lien senior secured debt: About $310 million
  • Value available for second-lien senior secured debt: $0
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
  • Estimated senior unsecured debt: About $415 million
  • Value available for senior unsecured debt: $0 million
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
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