Investing.com -- S&P Global Ratings has upgraded the credit rating of Urban One Inc. to ’CCC+’ from ’SD’ (selective default) despite the company’s reliance on favorable business, financial, and economic conditions to meet its financial obligations. The rating agency stated that the company’s dependence on these conditions persists despite the recent reduction in debt.

Urban One recently announced that it had repurchased over 10% of its senior secured notes due in 2028 at a considerable discount to par, reducing its outstanding debt by $88.6 million. However, the company is facing declining EBITDA and cash flow due to ongoing pressures in the broadcast radio and cable TV sectors.

The issue-level rating on the company’s $496 million (outstanding) senior secured notes due in 2028 was also raised to ’CCC+’ from ’D’. The recovery rating continues to be ’3’. The negative outlook is due to ongoing challenges from secular and cyclical pressures and the possibility of a lower rating if a default is anticipated within 12 months.

S&P Global Ratings expects Urban One’s adjusted gross leverage to increase to 6.5x in 2025 and 7.6x in 2026, up from 5.9x at the end of 2024, despite the recent debt reduction. The EBITDA is expected to decline over the next few years due to challenges in the broadcast radio and cable television sectors, making it difficult for Urban One to significantly improve credit metrics before the company’s note maturity in February 2028.

The company’s revenues from broadcast radio and cable TV are expected to continue to decline due to secular challenges and weakening economic conditions. The majority of the company’s business comes from national advertising, which is expected to underperform local advertising. The company’s digital businesses are also facing headwinds due to client attrition, contract renegotiations, and higher traffic-acquisition costs.

Urban One has approximately $79.8 million of cash on hand and full availability under its $50 million asset-based lending (ABL) revolver, which matures in February 2026. Along with expectations for the company to generate $15 million in reported free operating cash flow (FOCF) in 2025, the company has sufficient liquidity to meet its fixed-charge obligations and continue to buy back debt at a discount.

However, the negative outlook reflects ongoing challenges from secular and cyclical pressures and the potential for a lower rating if a default is expected within 12 months. S&P Global Ratings could lower the rating on Urban One if a default is expected within the next 12 months, which could occur if secular declines in broadcast radio or cable television advertising accelerate or digital revenue growth is less robust than expected, deteriorating liquidity, or if the company pursues below-par debt repurchases, debt exchanges, or an out-of-court restructuring.

Although unlikely within the next 12 months, the rating on Urban One could be raised if S&P Global Ratings-adjusted gross leverage declines below 5x and the company manages to refinance its 2028 debt maturity at rates that enable it to generate consistent positive FOCF. This would likely require sustained revenue and EBITDA growth from accelerated digital revenue improvement to more than offset expected declines in broadcast radio advertising revenue.

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