Some Urban One (fka Radio One) bondholders have held talks with the company and its longtime banker Credit Suisse in recent months in order to put together a refinancing ahead of 2019 and 2020 maturities, said four of the broadcaster’s debtholders. Several bondholders have proactively made reverse inquiries, and expressed willingness to roll into new longer-dated paper, said two of the sources.

The radio and TV broadcaster will likely need strong support from existing holders, given its roughly 7x-levered credit profile, the sources added. Meanwhile, its secret weapon in the refinancing effort is the minority interest in MGM National Harbor casino in Maryland that the company began accumulating in April 2015. The stake is currently housed outside of the security package for the bank debt, so it could be offered up as additional collateral, several sources said.

Furthermore, the company has been buying back bonds at a discount in the open market to pave the way for the refinancing, SEC filings show. Its free cash flow generation in recent years has enabled it to chip away at the debtload, and will help offset some investor concerns over its high leverage and secular changes roiling the radio and cable markets, all of the sources said.

But trading levels highlight the continuing investor skittishness and imply that the company may wind up with a higher cost of capital than it has under its existing capital structure. Its USD 264m 9.25% senior subordinated notes due February 2020 last traded in size on 29 June at 97.25 yielding 11.14%, up from trades around 90 yielding 16.4% on 22 June, according to MarketAxess. The notes have been quoted more recently at around 97.5, said a trader.

Its USD 347m Libor+ 400bps (1% floor) first lien TLB due 2023 springs to maturity in November 2019 if the sub notes are still outstanding. The illiquid loan is not actively quoted, according to Markit, and was last quoted in early June in the 98.438/99.188 context.

Meanwhile, the company also has a USD 350m 7.375% secured note due 2022 which last traded in size at 98 yielding 7.99% on 18 June, down from par in late March.

At 1Q-end, leverage was 6.8x, given USD 138m in LTM adjusted EBITDA and USD 972m in total debt, SEC filings show. However, after stripping out some adjustments, EBITDA is around USD 125m, which would put leverage at 7.8x, as calculated in Debtwire’s 16 May Credit Report.

Still, Urban One has shaved off about a turn of leverage over the last several quarters. It bought back USD 40m in face amount of the sub bonds last year, followed by USD 11m in 1Q18 and at least USD 14m in 2Q18, according to SEC filings. Liquidity at 31 March included USD 44m in cash.

The company stands to generate up to USD 55m in free cash flow this year, if adjusted EBITDA remains flat at around USD 138m, less USD 6.8m in capex and around USD 75m of interest expense, sources estimated. That could drop to USD 40m-USD 45m for 2019, if interest expense rises and factoring in the potential for a dip in the radio and cable markets.

Management could seek to open up its liability management process by just tackling the 2020 sub notes, and avoid triggering the springing maturity in the loans, but it may look for a more global process and address the 2022 secured notes and 2023 TLB – especially since the loan springs to 91 days before the maturity of either note class if the notes are still outstanding.

“The easiest thing the company can do is extend the notes and kick out the maturity with the existing lenders. But when it comes to refinancing, nothing is off the table for them,” one of the sources said.

Radio waves

Urban One’s business comprises four segments primarily targeting an African-American audience: TV broadcasting, radio broadcasting, digital and a syndicated programming asset, Reach Media. The company acquired the controlling shares of its cable TV network, TV One, in April 2015 from Comcast, according to SEC filings. At 46.4% of 1Q18 revenue, it is the largest of the four segments.

TV One’s primetime ratings for consumers aged 25-54 were down 9% year over year for 1Q18 and flat compared to Q4 2017, according to a company press release. Because the cable TV component consists of only one channel, investors want to see the company prioritize its efforts to steady the network ratings, two of the sources said.

“They need to stabilize ratings at the cable network. Cable has much more competition now, but as long as they develop something to stay competitive long term, they should be fine. There are some negative headwinds in advertising, but cable is not going away tomorrow,” one of the sources added.

Net revenues from the radio broadcasting segment in 1Q18 dipped 0.6% year over year to USD 39.5m, or 39.6% of 1Q18 total net revenues.

Looking ahead at macro events that could impact the industry, the Federal Communications Commission could loosen ownership restrictions on how many stations a broadcaster can own, one of the sources said. That could open up more M&A possibilities for operators like Urban One, and potentially help them delever, he said.

Ace in the hole

Urban One’s own bond complex offers some pricing indications for what could be an expensive refinancing, as its 5x-levered secured bonds yield around 8% and its 6.8x-levered sub bonds yield over 11%.

But the MGM National Harbor stake “is their ace in hole,” one of the buysiders said. The stake could be worth more than USD 100m, which could make the collateral package for new secured debt more appealing to investors, two of the sources said.

Urban One has paid a total of USD 40m for its minority stake in the facility, which now amounts to 6.67%, SEC filings show. National Harbor generated USD 134m in 2017 EBITDA, and a 12x industry multiple would value it at as much as USD 1.876bn. That valuation would imply that Urban One’s stake is worth around USD 124m, or, discounting by several turns it could still be worth USD 80m-USD 100m.

Urban One is entitled to 1% of all the facility’s gaming revenues, which contributed USD 1.9m to its net income in 1Q18, up slightly from USD 1.3m during the same period in 2017, filings show.

Meanwhile, comps in the secondary market demonstrate investor appetite for radio broadcasters, especially if Urban One can keep reducing leverage, sources said.

For one, Townsquare Media – 5.8x-levered and much larger than Urban One with 320 radio stations compared to Urban One’s 56 – has a B-/B3 USD 300m 6.5% senior unsecured note due 2023 that last traded at 91.125 yielding 8.8%. A longer-dated junior capital component of a potential refinancing for Urban One would likely have to come wider, two of the sources said.

In the loan market, recently restructured Cumulus now has first lien and total leverage at 5.93x, and its B/B3 rated USD 1.3bn L+450bps exit first lien term loan is quoted in the 98.958/99.542 context, according to Markit.

A spokesperson for Urban One didn’t respond to requests for comment. Credit Suisse declined comment

2018 Debtwire