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Credit FAQ: Increasing Static Around U.S. Broadcast Radio’s Recovery Prospects

Broadcast radio advertising has yet to recover from revenue declines that began at the end of the first quarter of 2022, when advertisers became concerned about the landscape of rising inflation and interest rates, interrupting the U.S. industry's still ongoing recovery from the COVID-19 pandemic.

National advertising, down double-digit percentages this year, continues to underperform local advertising (down single digits). Companies have pulled back more on brand advertising than direct response advertising. We are increasingly uncertain about the timing and magnitude of a recovery in broadcast radio advertising and could take negative rating actions over the next few quarters as we gain better visibility into adverting trends in 2024.

Here, we answer frequently asked investor questions on the industry.

Frequently Asked Questions

What is S&P Global Ratings thinking about a recovery in broadcast radio advertising?

While we previously envisioned a recovery in the second half of 2024 amid improving macroeconomic conditions, we are increasingly uncertain about the timing and magnitude. Although stronger-than-expected U.S. domestic economic growth in 2023 has reduced our expectations for an economic recession, we expect growth will come in below trend for the next two years. In addition, the balance of risks to our economic forecast is tilted to the downside, including the risk that persistently high interest rates and inflation will deplete consumer savings.

Our revenue forecast for the broadcast radio advertising industry (as of July 2023) includes a 7% decline in 2023 and 3% increase in 2024, when we expect more than a 10% haircut in radio advertising spending versus before the pandemic. We have made no changes to our forecast given high uncertainty. Radio advertising has some of the shortest lead times in media, which gives us scarce visibility into future performance. We believe lead times have further compressed and radio companies now only have a few weeks to a month of visibility. In our view, this also makes pacing data less reliable.

We believe greater visibility into the industry's recovery is unlikely until the second quarter of 2024. We expect the fourth quarter of 2023 will produce the highest revenue and EBITDA of the year because of seasonality, but lower than last year (even after excluding political advertising revenue in 2022). The first quarter of 2024 will be weak, we believe, with both economic and secular challenges on top of what is typically a seasonally low quarter.

Radio advertising is relatively inexpensive compared to other forms of media (radio cost per thousand impressions are about one-third those for broadcast TV), which provides advertisers a healthy return and should help support the industry's recovery. However, radio spots are still largely bought through a sales team (rather than a data platform). CEO Bob Pittman of iHeartMedia Inc. said in February 2023, "You've got somebody basically allocating money to sectors often based on emotionality and personal bias." This leads to underinvestment compared to other forms of media. While broadcast radio has maintained its widespread reach across 90% of the country, radio listenership has declined, with about 82% of Americans listening to radio in a given week in 2022; it was about 90% in 2017 (according to Nielsen). During the same time, average weekly time spent listening also declined about 15%.

Is political advertising revenue meaningful for broadcast radio companies?

Broadcast radio garners a small share of political advertising dollars, which we estimate in the single-digit percent area, whereas broadcast TV picks up about half. For most radio companies, we do not consider the amount of political advertising revenue material enough to improve their credit metrics on a sustained basis, but rather view it as a benefit to liquidity. Given the intense political climate in the U.S., we believe such revenue in 2024 during the next presential election cycle will at least meet, if not exceed, revenue in 2020.

Table 1

U.S. radio broadcasters' political ad revenue
2020: U.S. presidential election (Mil. $) 2022: U.S. midterm election (Mil. $)

iHeartMedia Inc.

167.5 (98.7 from broadcast radio) 132.0 (70.9 from the broadcast radio)

Audacy Inc.

32.3 25.3

Cumulus Media Inc.

26.3 18.4

Townsquare Media Inc.

16 7.5

Urban One Inc.

15.4 13.2

Beasley Broadcast Group Inc.

15.2 7.5

Spanish Broadcasting System Inc.

7.3 4.5

Salem Media Group Inc.

6.6 5.9

Hubbard Radio LLC

Private financials Private financials
Source: Company reports.
How does S&P Global Ratings view refinancing risk for the broadcast radio industry?

If the recovery in broadcast radio advertising extends beyond the second half of 2024 or is weaker than we expect, we believe it would increase refinancing risk associated with the industry's 2026 debt maturities, particularly those that become current in the first half of 2025. These maturities include:

  • Beasley Broadcast Group Inc.'s $277 million outstanding, 8.625% senior secured notes due Feb. 1, 2026;
  • Townsquare Media Inc.'s $504 million outstanding, 6.875% senior secured notes due Feb. 1, 2026;
  • Spanish Broadcasting System Inc.'s $310 million outstanding 9.75% senior secured notes due March 1, 2026;
  • Cumulus Media Inc.'s $330 million outstanding senior secured term loan due March 26, 2026;
  • iHeartMedia's $1.9 billion outstanding senior secured term loan due May 1, 2026;
  • iHeartMedia's $401 million outstanding senior secured incremental term loan due May 1, 2026;
  • iHeartMedia's $800 million outstanding, 6.375% senior secured notes due May 1, 2026; and
  • Cumulus' $346 million outstanding, 6.75% senior secured notes due July 1, 2026.

We believe refinancing risk is also heightened by the industry's concentration of debt maturities in 2026 given the potential for supply to exceed demand.

Chart 1

image

In evaluating whether a radio broadcaster's capital structure is sustainable, we generally consider its ability to reduce S&P Global Ratings-adjusted leverage below 6x, and therefore generate free operating cash flow (FOCF) and maintain healthy interest coverage as maturities become current. We believe certain radio broadcasters with greater exposure to digital revenue could operate with moderately higher leverage. Increasing and profitable digital revenue improves the potential to reduce leverage over time. In previous downturns, certain radio companies had difficulty accessing capital markets with leverage above 5x. With broadcast radio advertising down 40% in the second quarter of 2020 (at the onset of the pandemic), iHeartMedia was the only radio company to issue debt.

Audacy Inc. has been discussing strategies to manage its liabilities with lenders, which we believe will lead to a comprehensive debt restructuring or bankruptcy filing. The company has not made the interest payments on its various debt instruments, and we do not expect it will make them in the stated grace period to preserve financial flexibility. Audacy has underperformed its peers due to its higher percentage of stations in large urban markets, which can behave more like national markets than local markets, resulting in S&P Global Ratings-adjusted gross leverage of about 24x and material FOCF deficits for the 12 months ended Sept. 30, 2023.

Chart 2

image

How does S&P Global Ratings view debt trading levels?

The debt of many of the radio companies we rate has been trading as distressed levels since 2022. We consider this when evaluating the potential cost of refinancing, the impact on a company's expected future cash flow, and its ability to reduce leverage.

Chart 3

image

At the same time, we consider the potential for a subpar debt buyback. Per our criteria, we would consider this tantamount to a default if:

  • We believe that the transaction implies the investor will receive less value than promised when the original debt was issued; and
  • We believe that without the transaction, there is a realistic possibility of a conventional default over the near to medium term.

Conversely, we view a transaction as opportunistic, rather than distressed, if we believe the issuer could avoid bankruptcy in the near to medium term even without the debt restructuring.

Chart 4

image

Longer term, can digital revenue growth offset expected declines in broadcast radio revenue?

Townsquare and iHeartMedia both have scaled and profitable digital businesses, which in our view best positions them to offset such declines. In particular, iHeartMedia has significantly lifted its podcasting revenue over the last few years while Townsquare has increased its subscription digital marketing services and digital programmatic advertising revenue. Many other radio companies we rate generate fairly limited digital revenue and need to invest in additional digital capabilities when their operating and financial performance are under pressure, further constraining cash flow.

Urban One Inc. benefits from also having a cable segment (70% of total EBITDA). While cable TV also faces secular challenges amid declining TV audiences, it is not as economically sensitive as broadcast radio since more than half of the company's cable revenue comes from affiliate fees.

Table 2

U.S. radio broadcasters' last-12-months digital revenue
Revenue (Mil. $) Portion of total (%)

iHeartMedia Inc.

1,051 27.6%

Audacy Inc.

258 21.5%

Townsquare Media Inc.

236 51.3%

Cumulus Media Inc.

145 16.5%

Urban One Inc.

78 16.2%

Beasley Broadcast Group Inc.

46 18.0%

Salem Media Group Inc.

42 15.9%

Spanish Broadcasting System Inc.

N/A N/A

Hubbard Radio LLC

Private financials Private financials
Financial data as of Sept. 30, 2023, other than Urban One (preliminary as of March 31, 2023). N/A--Not available. Source: Company filings.
How does S&P Global Ratings view industry participants' recovery prospects in hypothetical default scenarios?

We evaluate this on a going-concern basis. Despite secular challenges, we believe there is still demand for broadcast radio from consumers and advertisers and that broadcast radio is important to U.S. federal regulators for the broad dissemination of information. We believe radio companies would more likely restructure rather than liquidate, as Cumulus and iHeartMedia did when they emerged from Chapter 11 bankruptcy in 2018 and 2019. However, given our lower revenue expectations for the broadcast radio industry, we recently lowered the EBITDA multiple to 5.5x from 6x for smaller radio broadcasters and those with less digital revenue. This did not affect our recovery ratings. Townsquare's and iHeartMedia's EBITDA multiples remain 6x due to either larger scale or greater digital revenue.

Table 3

U.S. radio broadcasters EBITDA multiples
EBITDA multiple

iHeartMedia Inc.

6.0x

Townsquare Media Inc.

6.0x

Audacy Inc.

5.5x

Beasley Broadcast Group Inc.

5.5x

Cumulus Media Inc.

5.5x

Hubbard Radio LLC

5.5x

Salem Media Group Inc.

5.5x

Spanish Broadcasting System Inc.

5.5x

Urban One Inc.

5.5x
Source: S&P Global Ratings
How does an expected recovery in broadcast radio advertising affect ratings?

We have taken several negative rating actions within the industry over the past year, with many ratings now in the 'CCC' category based on liquidity, refinancing, or restructuring concerns. For companies in the 'B' category, we could take negative actions if performance is weaker than we expect through the rest of 2023 and early 2024 or we lower our expectations for a recovery in the second half of 2024, such that we expect credit metrics to remain weak for a prolonged period.

For companies in the 'CCC' category, we believe ratings upside is unlikely until we see a sustained improvement in operating performance and upcoming debt maturities are refinanced.

Table 4

U.S. radio broadcasters' credit quality
Rating and outlook Last-12-months S&P Global Ratings-adjusted leverage Last-12-months FOCF (Mil. $) Cash balance (Mil. $) Comments

Townsquare Media Inc.

B/Positive 5x 42.9 38 Leverage of 5x, sizable cash balance, and healthy FOCF.

iHeartMedia Inc.

B/Negative 7.3x 133.5 213.5 Sizable cash balance and healthy FOCF, material debt maturities in early 2026.

Cumulus Media Inc.

B-/Stable 7.8x 18.8 82.8 Sizable cash balance and healthy FOCF.

Urban One Inc.

B-/Stable 4.6x 60.3 201.5 Sizable cash balance and healthy FOCF.

Hubbard Radio LLC

B-/Negative Private financials Private financials Private financials Minimal cash balance, debt maturity in March 2025.

Spanish Broadcasting System Inc.

CCC+/Watch Neg 9.3x -4.9 7.5 Potential liquidity shortfall in the first half of 2024.

Beasley Broadcast Group Inc.

CCC+/Negative 8x -4.6 29.7 Elevated leverage and FOCF deficit.

Audacy Inc.

D 23.9x -105.6 57.4 Missed interest payments, in discussions with lenders to manage its liabilities.

Salem Media Group Inc.

CCC-/Negative 8.2x -20.4 0 Potential liquidity shortfall in the first half of 2024.
Financial data as of Sept. 30, 2023, other than Urban One (credit metrics as of Dec. 31, 2022, cash balance as of Sept. 25, 2023) and Spanish Broadcasting (as of June 30, 2023). Leverage is calculated using gross debt, other than iHeartMedia (calculated using net debt). N/A--Not available. FOCF--Free operating cash flow. Sources: Company filings, S&P Global Ratings.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Rose Oberman, CFA, New York + 1 (212) 438 0354;
rose.oberman@spglobal.com
Secondary Contact:Cody M La Grange, CFA, New York + 1 (212) 438 0204;
cody.la.grange@spglobal.com

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