Moody's cuts Lamar to SGL-2

Moody's Investors Service said it downgraded Lamar Advertising Co.'s speculative grade liquidity rating to SGL-2 from SGL-1 and changed the outlook to negative from stable following the company's announcement of a special dividend of about $325 million and a new stock repurchase program under which the company plans to buy back up to $500 million of its class A common stock over the next 24 months. The new share repurchase program is in addition to the $100.7 million of repurchase capacity available at Dec. 31 under the company's August 2006 stock repurchase plan.

The agency also affirmed the corporate family and probability-of-default ratings at Ba2, 2.875% convertible notes due 2010 at B1 (LGD6, 94%), secured revolving credit facility and term loan at Baa3 (LGD2) and 7 ¼% senior subordinated notes due 2013 and 6 5/8% senior subordinated notes due 2015 at Ba3, but changed the loss-given-default rate on the loans to 20% from 19% and the loss-given-default assessment on the notes to LGD5 (71%) from LGD4 (70%).

The downgrade of the speculative grade liquidity rating reflects the diminished liquidity while the company funds its dividend and share repurchase program, Moody's said.

The change in outlook reflect the company's increased debt-to-EBITDA ratio and weaker free cash flow-to-debt coverage pro forma for the completion of the share repurchase program and the dividend payment, the agency said, adding that other concerns include the company's appetite for incremental leverage to return capital to shareholders while it continues its digital deployment, its on-going acquisition activity and the inherent cyclicality of the advertising business.

These are balanced by Lamar's size, geographically diverse outdoor portfolio, strong EBITDA margins and underlying asset value, Moody's noted.

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