NOTE 9. NOTES PAYABLE AND LONG-TERM DEBT

 

Salem Media Group, Inc., the borrower under our senior secured credit facility, has no independent assets or operations. All of Salem's subsidiaries are 100% owned by Salem Media Group, and guarantees are full and unconditional and joint and several.

 

Term Loan B and Revolving Credit Facility

 

On March 14, 2013, we entered into a senior secured credit facility, consisting of  a term loan of $300.0 million (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”). The Term Loan B was issued at a discount for total net proceeds of $298.5 million. The discount is being amortized to non-cash interest expense over the life of the loan using the effective interest method. For each of the three and nine months ended September 30, 2014 and 2015, approximately $47,000 and $141,000, respectively, and $47,000 and $140,000, respectively, of the discount has been recognized as interest expense including approximately $27,000 of bank loan fees.

 

The Term Loan B has a term of seven years, maturing in March 2020. During this term, the principal amount may be increased by up to an additional $60.0 million, subject to the terms and conditions of the credit agreement. We are required to make principal payments of $750,000 per quarter which began on September 30, 2013 for the Term Loan B. Prepayments may be made against the outstanding balance of our Term Loan B. Each repayment of the outstanding Term Loan B is applied ratably to each of the next four principal installments thereof in the direct order of maturity and thereafter to the remaining principal balance in reverse order of maturity.

 

We have made repayments on our Term Loan B, including interest through the date of the payment as follows:

 

 

The Revolver has a term of five years, maturing in March 2018. We report outstanding balances on our Revolver as short-term based on use of the Revolver to fund ordinary and customary operating cash needs with repayments made frequently. We believe that the borrowing capacity under our Term Loan B and Revolver allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.

 

Borrowings under the Term Loan B may be made at LIBOR (subject to a floor of 1.00%) plus a spread of 3.50% or Wells Fargo's base rate plus a spread of 2.50%. Borrowings under the Revolver may be made at LIBOR or Wells Fargo's base rate plus a spread determined by reference to our leverage ratio, as set forth in the pricing grid below.  If an event of default occurs under the credit agreement, the applicable interest rate may increase by 2.00% per annum. At September 30, 2015, the blended interest rate on amounts outstanding under the Term Loan B and Revolver was 5.03%.

 

  

The obligations under the credit agreement and the related loan documents are secured by liens on substantially all of the assets of Salem and its subsidiaries, other than certain exceptions set forth in the Security Agreement, dated as of March 14, 2013, among Salem, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (the “Security Agreement”) and such other related loan documents.

 

With respect to financial covenants, the credit agreement includes a minimum interest coverage ratio, which started at 1.50 to 1.0 and steps up to 2.50 to 1.0 by 2016 and a maximum leverage ratio, which started at 6.75 to 1.0 and steps down to 5.75 to 1.0 by 2017.  The credit agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the credit agreement, restrict the ability of Salem and its subsidiary guarantors: (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens; (v) to sell assets; (vi) to enter into transactions with affiliates; or (vii) to merge or consolidate with, or dispose of all or substantially all assets to, a third party. As of September 30, 2015, our leverage ratio was 5.61 to 1 compared to our compliance covenant of 6.25 and our interest coverage ratio was 3.24 compared to our compliance ratio of 2.25. We were in compliance with our debt covenants under the credit facility at September 30, 2015.

 

Other Debt

We have several capital leases related to office equipment. The obligation recorded at December 31, 2014 and September 30, 2015 represents the present value of future commitments under the capital lease agreements.

Summary of long-term debt obligations

 

Long-term debt consisted of the following:

 

 

In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2015:

 

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Commitment fees of 0.50% on any unused portion of the revolver.

 

Maturities of Long-Term Debt

 

Principal repayment requirements under all long-term debt agreements outstanding at September 30, 2015 for each of the next five years and thereafter are as follows: