NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'BBB-' rating on the following series of Colorado Educational and Cultural Facilities Authority (CECFA) revenue bonds issued on behalf of Colorado Public Radio (CPR, or the station):
--$4.4 million CECFA revenue bonds (Colorado Public Radio) series 2002.
The Rating Outlook is Stable.
RATING RATIONALE:
--CPR's track record of generally breakeven to positive operating performance, fueled by its large state-wide listener base and stable donor support, underpins the 'BBB-' rating.
--Counterbalancing credit factors include CPR's limited financial cushion, demonstrated by weak balance sheet liquidity and high financial leverage.
--CPR benefits from its long-standing and experienced management team, which has implemented strategic initiatives over the past few years, enabling the station to remain competitive in a challenging industry environment.
KEY RATING DRIVERS:
--Maintenance of at least a breakeven level of operating performance and balance sheet liquidity at or above current levels.
--Ability to successfully resolve a sale or alternate use of CPR's Denver AM station and refinance a capital lease obligation maturing in April 2013.
SECURITY:
The fixed-rate series 2002 bonds are a general obligation of CPR, secured by a mortgage lien over land, buildings, and equipment. Additional security is provided by a security interest in any proceeds from a sale or transfer of the station's Federal Communication Commission (FCC) licenses, and a cash funded debt service reserve.
CREDIT SUMMARY:
CPR continues to maintain a solid statewide listener base, with a steady market share of about 6%. The fiscal 2009 transition of its news and information program in Denver to an FM frequency from AM has helped to attract a larger audience and generate additional revenues associated with program underwriting and donor support. Through healthy underwriting revenue and annual giving, CPR's operating margin has averaged a solid 3.4% over the past five fiscal years. CPR experienced slightly negative operations in fiscal years 2007 and 2008, due mainly to the station implementing strategy changes and investing in its programs. The operating margin subsequently improved each fiscal year since, with noticeable improvement in fiscal 2010. In addition, CPR benefited from increased giving in fiscal 2010, albeit due largely to a one-time gift from a single donor. It also implemented a number of budget cuts including reducing salaries and staff headcount. Fiscal 2011 is currently ahead of budget and CPR expects to end the year with an operating surplus. Fitch notes that CPR's revenue diversity remains limited, relying heavily on individual pledges and program underwriting. However, while these funding sources have the potential to fluctuate year-over-year, support received by CPR has steadily increased over the past several years.
Following three years of flat to declining balance sheet resources, CPR's available funds, defined as unrestricted and temporarily restricted cash and investments, improved noticeably to $3.3 million as of June 30, 2010, up from $1.5 million as of June 30, 2009. Unaudited results as of Dec. 31, 2010 show an additional increase in available funds to $4.1 million. Despite these improvements, balance sheet liquidity remains weak, with fiscal 2010 available funds covering operating expenses ($9.8 million) and debt ($12.8 million, including an $8.4 million subordinate capital lease obligation) by a low 34% and 26%, respectively. CPR also established a board designated fund in 2010, which while unrestricted, is reserved for developing revenue-generating programs. Fitch notes that failure by CPR to sustain recent improvements in balance sheet resources and operations could lead to negative pressure in the rating and/or to the Rating Outlook.
The declines in liquidity and increase in financial leverage prior to fiscal 2010 were primarily the result of CPR incurring the $8.4 million capital lease to acquire a new FM frequency and move its Denver based news program from its existing AM frequency. Payment obligations under the capital lease are subordinate to debt service on the series 2002 bonds. CPR intends to sell the AM frequency and use the proceeds from the sale to defease the series 2002 bonds. However, while it is actively seeking a buyer, the timing of such sale remains uncertain given the recent economic downturn and somewhat dormant market for AM radio frequencies.
Established in 1991, Colorado Public Radio is a statewide nonprofit public radio network with stations located in Denver, Boulder, Pueblo, Grand Junction, Delta, Montrose, Vail, and Glenwood Springs.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
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