Investing.com -- Moody's Ratings has downgraded the Corporate Family Rating (CFR) of Urban One, Inc. to Caa2 from B3, due to challenges in the company's operating performance. This downgrade also includes a Probability of Default Rating (PDR) adjustment to Caa2-PD from B3-PD and a senior secured notes rating downgrade to Caa2 from B3. The Speculative Grade Liquidity Rating (SGL) remains unchanged at SGL-2, and the outlook continues to be negative.

The downgrade is a reflection of the difficulties Urban One has faced in its broadcast radio and cable TV segments, which have seen subscriber attrition and lower audience engagement. Such risks increase the likelihood of distressed debt exchanges, particularly in light of the company's high leverage, weak equity valuation at $36 million, and low debt trading levels. The future pace of subscriber losses and the stability of radio advertising demand remain uncertain.

Moody's Ratings VP-Senior Analyst, Alison Chisuhl Jung, noted that despite Urban One's good liquidity, the company's cable TV segment is under significant pressure due to consistent declines in cable subscribers. This has led to reduced affiliate revenues and is expected to push the adjusted debt to EBITDA up to the mid to high 6x range over the next 12 months.

The Caa2 CFR given to Urban One reflects the secular pressures in the cable TV and radio broadcast segments, and the high financial leverage. Despite having contractual agreements with cable and satellite companies that include annual escalators, the rate increases have been overshadowed by a declining subscriber base and lower viewership. TV One subscribers have decreased to 37.2 million, a 13.3% YoY decrease and a 4.9% decrease from the previous quarter.

Urban One's SGL-2 rating reflects its good liquidity, with a cash balance of approximately $138 million at the end of 2024. The company also has access to an undrawn $50 million ABL facility due in 2026 and is expected to generate $10-$15 million in free cash flow in the next 12-18 months. Through debt buybacks, the company reduced the principal amount of senior secured notes by $140 million in 2024 and an additional $17 million in Q1 2025. As a result, annual interest expense is expected to decrease to $42 million in 2025.

Urban One's ratings could be upgraded if adjusted debt-to-EBITDA is sustained below 7.0x, with positive organic growth in the radio and cable network operations and good liquidity. Conversely, the ratings could be downgraded if revenue declines persist or profitability remains weak due to declining subscriber trends and weak advertising demand, causing a further deterioration in the liquidity position or an increase in the probability of default.

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