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Radio Station Debt Financing November 2013. Dave Westburg Taneum Creek Capital [email protected] 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

Radio Station Debt FinancingNovember 2013

Dave Westburg

Taneum Creek Capital

[email protected]

www.wpmedialending.com

206-910-1283

Radio Station Debt Financing


Dave westburg background
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


A lender s view of the radio industry
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


Slow growth is the new normal
Slow Growth is The New Normal

Radio Station Debt Financing


Equity
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


Sources of equity
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


A senior lender s view of seller debt
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


6x 4x 7
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


What you need to access bank debt
What you need to access bank debt.

  • Equity.

  • A transaction.

  • A loan package.

Radio Station Debt Financing


A lender s view of acquisitions
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


A guide to addbacks
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


Examples of undeclared liabilities which you inherit if you buy stock
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


The loan package in order of importance
The Loan Package (in order of importance) Buy Stock

  • 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


What to do when approaching a lender
What to do when approaching a lender. Buy Stock

  • 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


Ebidta what the business can pay the bank
EBIDTA (what the business can pay the bank) Buy Stock

  • 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


My debt terms
My Debt Terms Buy Stock

  • 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


My debt terms continued
My Debt Terms Continued Buy Stock

  • 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


Sources of debt
Sources of Debt Buy Stock

  • 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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