Low cash flow margins should be one of the main focus areas for potential investors in the $350 million senior secured credit for Cumulus Media, according to Moody's Investors Service, which has assigned a B1 rating to the credit. Revenue at the company is suffering from more than just a soft advertising environment, said Dominic Ward, analyst at Moody's, noting that issues at specific radio stations are causing overall low revenues. J.P. Morgan is leading the deal, which is in the market.
Cumulus Media ran into difficulty after it bought multiple stations and hired an excessive sales force, said Ward. He explained that the company was unable to set and hold its new stations to a high performance level. Consequently, high debt expenses were incurred by the new properties at a time when the company was already highly leveraged. "The combination of the two made for difficult times," said Ward. Marty Gausvik, executive v.p. and cfo of Cumulus Media, said he did not think those issues would be a hindrance. "Those were problems in 2000, and I don't believe those are problems going forward," he said, noting that the company has seen a pro forma EBITDA increase of 13% in 2001. "We've still got a lot of margin expansion capabilities," he added.
Gausvik said the company has implemented new cost controls and expects to close the acquisition of 21 radio stations in April. This time around the company is planning to use equity for purchases. "They are willing to use equity to improve their position," said Ward, noting that the company also intends to be more disciplined in its acquisition approach. In terms of its sales force, Cumulus Media has converted to a 100% commission-based compensation system for its sales force, has taken measures to improve the quality of its sales, and has employed other cost cutting initiatives. Another positive attribute of the company is its large, geographically diverse network of stations.
The company's new credit comprises a $100 million reducing revolver, a $100 million term loan "A", and a $150 million term loan "B," replacing the company's existing B1 rated $175 million credit. The loans are in the senior-most position in the capital structure. The bank debt is secured by all the assets of the company and benefit from upstream guarantees.