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Radio Station Debt Financing November 2013

Radio Station Debt Financing November 2013. Dave Westburg Taneum Creek Capital dave.westburg@comcast.net www.wpmedialending.com 206-910-1283. Dave Westburg Background. 25 years lending to radio stations. Four funds which have $20 million lent to media companies.

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Radio Station Debt Financing November 2013

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  1. Radio Station Debt FinancingNovember 2013 Dave Westburg Taneum Creek Capital dave.westburg@comcast.net www.wpmedialending.com 206-910-1283 Radio Station Debt Financing

  2. Dave Westburg Background • 25 years lending to radio stations. • Four funds which have $20 million lent to media companies. • 3 minority-owned borrowers. • Own nine stations in Alabama, Nevada and New Mexico. Radio Station Debt Financing

  3. A Lender’s View of The Radio Industry • Slow growth is the new normal. • Don’t waste my time if you don’t have equity. • I hate seller debt. • 6X/4X/7 Radio Station Debt Financing

  4. Slow Growth is The New Normal Radio Station Debt Financing

  5. Equity • You need to put in cash equal to 30-50% of the purchase price. • Seller debt is not equity. • Loans which bear interest are not equity. Radio Station Debt Financing

  6. Sources of Equity • Home equity line of credit. • Savings. • Costly to access 401(k) or IRA. • 10% early withdrawal penalty. • Taxed as current income. • Friends and family. • Jobs Act (SEC Oct 23, 2013 Proposal on Crowdfunding). • Accredited Investors. • Equity Funds. Radio Station Debt Financing

  7. A Senior Lender’s View of Seller Debt • Seller Debt uses up debt capacity. • Seller debt holders have little incentive to cooperate in financial difficulties. • Seller debt raises the cost of a workout. • Complexity. • Legal Fees. • Use seller debt only if you can’t get senior debt financing. Radio Station Debt Financing

  8. 6X/4X/7 • Valuations are 6 times cashflow (EBIDTA) • Debt Capacity is 4 times cashflow (EBIDTA) • Debt must be paid back within 7 years. Radio Station Debt Financing

  9. What you need to access bank debt. • Equity. • A transaction. • A loan package. Radio Station Debt Financing

  10. A Lender’s View of Acquisitions • Valuations • 6 times cashflow (EBIDTA) • 1-2 times gross revenue • Transaction needs to work with no growth. • Is there a good tower lease? • Can you find a translator for the AM stations? • Be skeptical of addbacks. • Purchase assets, not stock. • Can depreciate assets but not stock. • You’re stuck with the owner’s liabilities. Radio Station Debt Financing

  11. A guide to addbacks • OK • LMA fees when the LMA is terminating. • Interest • Financing charges. • Fines and penalties. • Leases for space which won’t be used. • That portion of owner’s salary which won’t be replaced. • Not OK • Corporate overhead. • Phone expenses. • Travel. • Unspecified personnel cuts. • Legal fees. Radio Station Debt Financing

  12. Examples of Undeclared Liabilities Which You Inherit If You Buy Stock • FCC fines. • Environmental liabilities. • Unpaid BMI, ASCAP, SESAC royalties. • Lawsuits. • Tax liabilities. Radio Station Debt Financing

  13. The Loan Package (in order of importance) • Sources and uses of funds. • Historic financials. • Personal financial statement. • Business summary of the station you want to buy. • Management bio. • 3 business and professional references. • Projections. Radio Station Debt Financing

  14. What to do when approaching a lender. • Be specific on how much money you want and for what. • Approach the lender when you don’t need the money. • Talk the lender’s metrics • Revenues • Cashflow (EBIDTA) • Dwell on history, not on the future. Radio Station Debt Financing

  15. EBIDTA (what the business can pay the bank) • Earnings before: • interest • Depreciation • Income Taxes • Amortization • Trailing twelve months. • Debt Capacity is a multiple of EBIDTA • Debt Service coverage is (Interest and Principal)/EBIDTA Radio Station Debt Financing

  16. My Debt Terms • Interest rate of Prime plus 6% floating. • Floor on the rate at 12%. • 2% loan fee. • 2% legal/travel fee. • Personal guarantee. • First security interest in all assets of business. • UCC on inventory, equipment and receivables. • Assignment of material agreements. • Pledge of stock. Radio Station Debt Financing

  17. My Debt Terms Continued • Debt/EBIDTA of 4:1 or less. • Debt Service Coverage (Interest and principal)/EBIDTA in excess of 1.1 times. • Restrictions on dividends, salary, capital expenditures, other debt … • 5-7 year amortization. Radio Station Debt Financing

  18. Sources of Debt • Taneum Creek Capital. • SBA. • Banks. • Leasing Companies. • Finance companies (usually want to do $10 million or more). • Seller financing. Radio Station Debt Financing

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