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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)
  • 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.
  • 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)
  • 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
  • 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
  • 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
  • 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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