Investing.com -- Moody’s Ratings has upgraded the long-term corporate family rating (CFR) of CME Media Enterprises B.V. (CME) from B1 to Ba3, and the probability of default rating (PDR) from B2-PD to B1-PD. The rating agency also revised the outlook for the company from positive to stable. CME, a leading free-to-air broadcaster, operates in six Central and Eastern European countries.

The upgrade was driven by the reduction in CME’s leverage over the past three years, resulting from solid operating performance, good free cash flow generation, and debt repayments. Furthermore, Moody’s expects the company to continue generating modest earnings growth, which, along with the company’s revision of its net leverage target to 2.75x from 3.25x, could lead to further improvements in the credit metrics.

CME’s revenue grew 11% in 2024, driven by high single-digit growth in TV advertising and carriage fees, and over 40% growth in Voyo subscription revenue. The company’s market shares remained strong, growing in 5 out of 6 CME’s markets. Despite continued strategic investments in content and Voyo, CME’s reported OIBDA also grew 6% in 2024.

Moody’s expects CME’s revenue growth to decelerate to mid-to-low-single digit rates over the next two years due to continued growth in subscription and carriage fees and more muted growth in TV advertising revenue. The company’s Moody’s adjusted EBITDA margin is expected to remain at around 25-26% following several years of progressive declines from 35% in 2021 to 27% in 2024.

CME’s leverage, as measured by Moody’s-adjusted gross debt/EBITDA, declined to an estimated 3.3x in 2024 from 3.6x at the end of 2023 and 5.2x at the end of 2020. This deleveraging was mainly driven by EBITDA growth and debt repayments supported by positive free cash flow generation after dividends. Moody’s projects CME’s adjusted gross leverage will decline towards 3.0x by 2026.

The rating also reflects CME’s strong operating and financial performance, solid market position, good recurring free cash flow, improved revenue visibility due to higher carriage and subscription fees, and a more flexible cost structure. However, it also considers the company’s high exposure to the cyclical advertising market, the structural challenges in linear TV, the highly competitive nature of the VOD market, and the execution risks related to the launch of Oneplay, a new integrated OTT video streaming and live TV platform operated by CME in the Czech Republic.

CME’s decision to pursue a more conservative financial policy and a lower tolerance for leverage has led to an improvement in the company’s Financial Strategy and Risk Management score to 3 from 4, the governance issuer profile score (IPS) to G-3 from G-4, and the Credit Impact Score (CIS) to CIS-3 from CIS-4.

CME’s liquidity is supported by a cash balance of €45 million as of December 2024, €50 million of availability under the revolving credit facility (RCF) due 2028 and an estimated annual FCF of around €55 million in 2025. These sources more than cover the company’s cash requirements over the next 12-18 months, including debt repayments of around €50 million per year.

The stable outlook on the rating reflects Moody’s expectation that CME will maintain good operating performance driving positive free cash flow generation and enable additional deleveraging.

Further upward pressure on the rating is limited due to the structural challenges affecting the linear TV sector. However, positive pressure could develop if CME continues to execute its strategy of diversifying its revenue base, leading to higher revenue visibility, improved profitability, and increased scale. Conversely, negative rating pressure could develop if earnings deteriorate, the company enters into aggressive shareholder distributions or large debt-financed acquisitions, such that its Moody’s-adjusted gross leverage rises sustainably above 3.75x, its adjusted FCF/gross debt deteriorates on a sustained basis or its liquidity deteriorates.

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