Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt

v3.23.3
Long-Term Debt
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Long-Term Debt
NOTE 10. LONG-TERM DEBT
Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditio
nal
and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.
Long-term debt consists of the following:
 
 
  
December 31, 2022
 
  
September 30, 2023
 
 
 
 
 
 
 
  
(Dollars in thousands)
 
2028 Notes
   
$
114,731
 
  
$
159,416
 
Less unamortized discount and debt issuance costs
     
(3,253
) 
  
 
(6,805
) 
    
 
 
     
 
 
  
2028 Notes, net carrying value
     
111,478
 
  
 
152,611
 
    
 
 
     
 
 
  
2024 Notes
     
39,035
 
  
 
—
 
Less unamortized debt issuance costs
     
(146
) 
  
 
—
 
    
 
 
     
 
 
  
2024 Notes, net carrying value
     
38,889
 
  
 
—
 
    
 
 
     
 
 
  
Asset-Based Revolving Credit Facility principal outstanding (1)
     
8,958
 
  
 
20,524
 
    
 
 
     
 
 
  
Long-term debt less unamortized discount and debt issuance costs
   
$
159,325
 
  
$
173,135
 
    
 
 
     
 
 
  
Less current portion
   
 
8,958
 
  
 
20,524
 
    
 
 
     
 
 
  
Long-term debt less unamortized discount and debt issuance costs, net of current portion
  
$
150,367
 
  
$
152,611
 
    
 
 
     
 
 
  
 
(1)
As of September 30, 2023, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $23.9 million, $20.5 million in outstanding borrowings, and $0.3 million of outstanding letters of credit, resulting in a $3.1 million borrowing base availability.
Our weighted average interest rate was 6.85% and 7.43% at December 31, 2022, and September 30, 2023, respectively.
In addition to the outstanding amounts listed above, we also have interest obligations related to our long-term debt as follows as of September 30, 2023:
 
  •  
$159.4 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
  •  
$20.5 million outstanding borrowings under the ABL facility, with interest payments due at SOFR plus 4.0% per annum or prime rate plus 3.0% per annum; and
 
  •  
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
2028 Notes
On March 20, 2023, we issued $44.7 million in new 7.125% Senior Secured Notes due in 2028 at a discount of $41.9 million resulting in an effective yield of 8.625%. We used a portion of the proceeds of this borrowing to redeem the remaining $36.5 million of 6.75% Senior Secured Notes due. The redemption of the 2024 Notes closed on March 27, 2023.
The 2028 Notes are guaranteed on a senior secured basis. We may redeem the 2028 Notes, in whole or in part, at any time prior to June 1, 2024, at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium and accrued and unpaid interest, if any, up to, but not including, the redemption date. At any time on or after June 1, 2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes indenture, plus accrued and unpaid interest, if any, up to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 2024, with the net cash proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount plus accrued and unpaid interest, if any, up to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve-month period, in connection with up to two redemptions in such twelve-month period, at a redemption price of 101% of the principal amount plus accrued and unpaid interest up to, but not including, the redemption date.
 
The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021, and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding at September 30, 2023, we are required to pay $11.4 million per year in interest. As of September 30, 2023, accrued and unpaid interest on the 2028 Notes was $3.9 million.
The indenture to the 2028 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2023, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $9.3 million, of which $0.2 million of third-party debt modification costs were expensed during the three months ended March 31, 2022. During the three and nine months ended September 30, 2023, $0.4 million and $1.2 million, respectively, of debt issuance costs and delayed draw fees associated with the Notes were amortized to interest expense. During the three and nine months ended September 30, 2022, $0.2 million and $0.5 million, respectively, of debt issuance costs and delayed draw fees associated with the Notes were amortized to interest expense.
2024 Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes were guaranteed on a senior secured basis by our existing subsidiaries (“Subsidiary Guarantors”). The 2024 Notes accrued interest at a rate of 6.75% per year and were maturing on June 1, 2024, unless they were earlier redeemed or repurchased. Interest was payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral as described below. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
We recorded debt issuance costs of $6.3 million as a reduction of the debt proceeds being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During the three and nine months ended September 30, 2023, $0 and $20,000, respectively, of debt issuance costs associated with the Notes was amortized to interest expense. During the three and nine months ended September 30, 2022, $35,000 and $0.1 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.
On March 27, 2023, we redeemed the remaining $36.5 million of 2024 Notes and paid $0.8 million in accrued but unpaid interest through the redemption date.
 
Based on the then existing market conditions, we completed repurchases of our 2024 Notes as follows:
 
Date
  
Principal
Repurchased
 
  
Cash
Paid
 
  
% of Face
Value
 
 
Bond Issue
Costs
 
  
Net Gain
(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
  
(Dollars in thousands)
 
January 19, 2023
    $ 2,500      $ 2,431        98.95 %    $ 30      $ 39  
December 19, 2022
      4,650        4,557        98.00 %      57        36  
December 14, 2022
      1,000        965        96.50 %      5        30  
June 13, 2022
      5,000        4,947        98.95 %      35        18  
June 10, 2022
      3,000        2,970        99.00 %      21        9  
June 7, 2022
      2,464        2,446        99.25 %      17        1  
May 17, 2022
      2,525        2,500        99.00 %      18        7  
January 12, 2022
      2,500        2,531        101.26 %      22        (53 ) 
December 10, 2021
      35,000        35,591        101.69 %      321        (912 ) 
October 25, 2021
      2,000        2,020        101.00 %      19        (39 ) 
October 12, 2021
      250        251        100.38 %      2        (3 ) 
October 5, 2021
      763        766        100.38 %      7        (10 ) 
October 4, 2021
      628        629        100.13 %      6        (7 ) 
September 24, 2021
      4,700        4,712        100.25 %      44        (56 ) 
January 30, 2020
      2,250        2,194        97.50 %      34        22  
January 27, 2020
      1,245        1,198        96.25 %      20        27  
December 27, 2019
      3,090        2,874        93.00 %      48        167  
November 27, 2019
      5,183        4,548        87.75 %      82        553  
November 15, 2019
      3,791        3,206        84.58 %      61        524  
March 28, 2019
      2,000        1,830        91.50 %      37        134  
March 28, 2019
      2,300        2,125        92.38 %      42        133  
February 20, 2019
      125        114        91.25 %      2        9  
February 19, 2019
      350        319        91.25 %      7        24  
February 12, 2019
      1,325        1,209        91.25 %      25        91  
 
22
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 10, 2019
      570        526        92.25 %      9        35  
December 21, 2018
      2,000        1,835        91.75 %      38        127  
December 21, 2018
      1,850        1,702        92.00 %      35        113  
December 21, 2018
      1,080        999        92.50 %      21        60  
November 17, 2018
      1,500        1,357        90.50 %      29        114  
May 4, 2018
      4,000        3,770        94.25 %      86        144  
April 10, 2018
      4,000        3,850        96.25 %      87        63  
April 9, 2018
      2,000        1,930        96.50 %      43        27  
     $ 105,639      $ 102,902              $ 1,310      $ 1,427  
 
 
 
 
 
 
 
 
 
 
 
 r̥
 
 
 
 
 
 
 
 
 
Asset-Based Revolving Credit Facility
On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (“Credit Agreement”) by and among us and our subsidiaries, parties thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities and related fees and expenses. Current proceeds from the ABL Facility are used to provide ongoing working capital and for other general corporate purposes, including permitted acquisitions.
The ABL Facility is a $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued.
Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of September 30, 2023, the amount available under the ABL Facility was $25.1 million of which $20.5 million was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets, and by a second-priority lien on the notes priority collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
The Credit Agreement includes a springing fixed charge coverage ratio
of
1.0
to 1.0, which is tested during the period commencing on the last day of the fiscal month most recently ended prior to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. 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 or limit our ability and the ability of our subsidiaries to (i) incur additional indebtedness; (ii) make investments; (iii) make distributions, loans or transfers of assets; (iv) enter into, create, incur, assume or suffer to exist any liens, (v) sell assets; (vi) enter into transactions with affiliates; (vii) merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) prepay indebtedness (which does not include bond repurchases); and (ix) pay dividends.
The Credit Agreement provides for the following events of default:
(i) non-payment
of any principal or letter of credit reimbursement when due or any interest, fees, or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the administrative agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respect of the collateral.
Because the availability was less than $4.5 million during the quarter, we were required to test against the fixed charge coverage ratio covenant. The fixed charge coverage ratio was below the required 1.0 to 1.0 level during the quarter and therefore, we were not in compliance with that covenant. During the quarter, we signed multiple monthly forbearance agreements for which the recent
forbearance agreement was dated November 2, 2023, whereby the bank agreed not to exercise remedies on the default. Additionally, the notional amount of the revolver was reduced from $30.0 million to $25.0 million with a minimum availability of $1.0 million. Finally, the interest rate on the ABL Facility was increased to Secured Overnight Financing Rate (“SOFR”) plus 4% or base rate plus 3.0% effective July 1, 2023.
We recorded debt issue costs of $1.1 million as an asset being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three and nine months ended September 30, 2023, $54,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL Facility was amortized to interest expense. During the three and nine months ended September 30, 2022, $25,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL Facility was amortized to interest expense. At September 30, 2023, the blended interest rate on amounts outstanding under the ABL Facility was 9.83%.
We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at September 30, 2023 for each of the next five years and thereafter are as follows:
 
    
Amount
  
For the Year Ended September 30,
   
(Dollars in thousands)
  
2024
    $ 20,524  
2025
      —   
2026
      —   
2027
      —   
2028
      159,416  
Thereafter
      —   
    
 
 
  
     $ 179,940