SALM - Salem Media (SALM) - Raising Our Financial Assessment Ranking

Extends large portion of debt maturities. Last week, the company announced the refinancing of $112.8 million of its senior secured notes due 2024 with 7.125% senior secured notes due 2028. The refi represented roughly 50% of the company's total $225 million in debt. The move is viewed favorably.Raising our financial assessment. While the interest rate increases from 6.75% to 7.125%, we believe that the fixed rate is favorable given the prospect of a rising interest rate environment and given the extended maturity on the bonds. We are raising our financial assessment from 2.0 to 2.5 checks to reflect the favorable runway toward debt reduction.Balance sheet is de-risked. We believe that the extended maturity on roughly half of the company's debt provides significant financial flexibility. Combined with a $50 million revolver, over $30 million in cash (currently $20 million, plus proceeds from a real estate sale), and free cash flow over the next few years, the company will have the ability to pay off the 2024 bonds at maturity. Pathway to significant debt reduction. We believe that the prospect of a refi in 2023/2024 will hold the company's feet to the fire to build cash and/or repurchase bonds in advance of the 2024 maturities. Debt is currently at 5.3 times our 2022 adj. EBITDA levels, while high, it is reasonable given its fundamental stability relative to its peers. Compelling stock valuation. Near current levels, the SALM shares trade at 7.9 times EV to our $35.9 million 2022 adj. EBITDA estimate, or at the low end of the company's 10-year average trading range of 7.3 to 9.5 times. Our price target of $4.25 a share reflects a target multiple of 8.4 times. In our view, debt reduction is one of the leading catalysts toward higher stock valuations. Read More >>