Investing.com -- S&P Global Ratings has revised the outlook for Townsquare Media (NYSE: TSQ ) Inc. to negative from stable due to weakening economic conditions. Despite this, the ratings for Townsquare’s issuer credit and issue-level on its senior secured debt have been affirmed at ’B+’. The recovery rating for the senior secured debt remains at ’3’.

The revision of the outlook is based on the expectation that the challenging macroeconomic conditions will affect advertising spending, causing Townsquare’s gross leverage to rise above the 5x downside threshold for its current rating in 2025. The company’s leverage is expected to decrease below 5x in 2026 due to increased revenue from political advertising in an election year and further required debt repayment.

However, if the economic conditions deteriorate more than anticipated or persist for a longer period, it could slow down Townsquare’s deleveraging process. The negative outlook also signifies the risk that the company may maintain leverage above the 5x downgrade threshold over the next 12 months due to uncertain macroeconomic conditions and limited visibility into a future recovery.

S&P Global Ratings has also lowered its 2025 adjusted EBITDA forecast for Townsquare by 4% to $98 million and its 2026 forecast by 3% to $109 million. Despite this, the company is expected to generate about $20 million of free operating cash flow (FOCF) in 2025 and about $40 million in 2026, which could be used for voluntary debt repayment.

Townsquare’s primary source of expansion will continue to be its digital businesses, which currently account for about 53% of its total revenue. Despite an anticipated economic slowdown, the company is expected to expand its digital revenue by 5%-6% for 2025. Last year, Townsquare launched a media partnership division to provide local media companies with digital advertising solutions, which is expected to further boost its revenue.

The company’s rating could be lowered if its debt to EBITDA rises and remains above 5x due to slower revenue growth, increased digital investments leading to a drop in EBITDA margins, or engagement in debt-funded shareholder returns or acquisitions. The outlook could be revised to stable if there is increased confidence in Townsquare’s ability to maintain leverage below 5x, which could involve voluntary debt repayment or a consistent record of EBITDA growth.

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