Salem Communications announced yesterday the settlement of the tender offer for the 9.625% bonds and the entry into new credit facilities. At the end of 2012 the company had $269 million of debt outstanding with a weighted average interest rate of 8.45%. Because Salem paid more than par to redeem the $213.5 million of notes in the tender offer the debt will go up to $300 million, but the interest rate will go down to 4.5% (they will pay LIBOR with a 1% floor + 3.50%). This means that the interest expense will go down from $22.7 million/year to just $13.5 million/year, and the FCF yield will go up from ~12.8% to ~18.3%.
I haven’t fully read all the details of the credit agreement, but a few highlights:
- The loan will reach maturity on March 14, 2020
- SALM is required to pay $750,000 in principal quarterly
- They can prepay without penalty
- At least 50% of the loan needs to be hedged at a fixed rate
Author is long SALM