Salem Communications Corp. worked with its "tried and tested" bank group, led by Bank of New York, to customize its new $150 million credit to fit within the company's business plan, explained David Evans, senior v.p. and cfo. Salem's acquisition strategy is focused on buying start-up radio stations, which have not yet developed strong cash flows, and changing the format of those stations, he said. To accommodate this model, when Salem does its covenant calculations, the company is able to exclude the start-up losses for the first 18 months of ownership in the station and half the purchase price up to 18 months as well.
The new credit comprises a $75 million revolver and a $75 million "B" term loan. Both tranches are priced on a grid tied to leverage and currently carry a spread of 23/4% over LIBOR. The previous facility was completed in 1999 and was amended a few times during its lifetime. "The old facility had reached the end of its useful life," Evans said, noting that the covenants were ratcheting down. The former facility essentially did not fit because the company continued to grow through acquisitions, he said. "We needed a facility that gave us the covenant and acquisition flexibility appropriate for a growth company," he explained, adding that Salem has also obtained flexibility for years into the future through an extended maturity.
Salem's previous facility was a $150 million revolver that had already amortized down to $138 million. But the company believed the combination of a new revolver and term loan would be the most attractive piece of paper for the market and for the company, Evans noted. After Salem completed its previous facility, it had just gone public and had excess cash on hand. This time around, the company had roughly $75 million drawn on its facility, making it useful to have a $75 million term loan. But the term loan does not have any institutional investors in the deal. "I describe it as a family and friends deal. There was more than sufficient appetite from your traditional bankers," Evans noted. GE Capital, SunTrust Bank, Fleet National Bank, ING Capital, Wells Fargo Foothill, Credit Lyonnais, Credit Suisse First Boston and Union Bank of Switzerland also participated on the credit. "They have consistently delivered for Salem," Evans said of the group.