Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2011


Senior Credit Facility

On December 1, 2009, our parent company, Salem Communications Corporation entered into a senior credit facility which is a revolver (“Revolver”). We amended the Revolver on November 1, 2010 to increase the borrowing capacity from $30 million to $40 million. The amendment allows us to use borrowings under the Revolver, subject to the “Available Amount” as defined by the terms of the Credit Agreement, to redeem applicable portions of the 95/8% Notes. The calculation of the “Available Amount” also pertains to the payment of dividends when the leverage ratio is above 5.0 to 1. The Revolver is a three-year credit facility, which includes a $5 million subfacility for standby letters of credit and a subfacility for swingline loans of up to $5 million, subject to the terms and conditions of the Credit Agreement relating to the Revolver. Amounts outstanding under the Revolver bear interest at a rate based on LIBOR plus a spread of 3.50% per annum or at the Base Rate (as defined in the Credit Agreement) plus a spread of 2.50% per annum, at our option as of the date of determination. Additionally, we pay a commitment fee on the unused balance of 0.75% per year. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the Revolver may be paid and then reborrowed at Salem’s discretion without penalty or premium. At September 30, 2011, the blended interest rate on amounts outstanding under the Revolver was 3.73%. We believe that the Revolver will allow us to meet our ongoing operating requirements, fund capital expenditures, and satisfy our debt service requirements.

With respect to financial covenants, the Credit Agreement includes a maximum leverage ratio of 7.0 to 1.0 and a minimum interest coverage ratio of 1.5 to 1. 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 the 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; (vii) to merge or consolidate with, or dispose of all or substantially all assets to, a third party; (viii) to prepay indebtedness; and (ix) to pay dividends. As of September 30, 2011, our leverage ratio was 5.25 to 1 and our interest coverage ratio was 1.88 to 1. We were in compliance with our debt covenants at September 30, 2011 and we remain in compliance.

Our parent company, Salem Communications Corporation, has no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several, and any subsidiaries of the parent company other than the subsidiary guarantors are minor.

Senior Secured Second Lien Notes

On December 1, 2009, we issued $300.0 million principal amount of 95/8% Notes at a discount for $298.1 million resulting in an effective yield of 9.75%. Interest is due and payable on June 15 and December 15 of each year, commencing June 15, 2010 until maturity. We are not required to make principal payments on the 95/8% Notes that are due in full in December 2016. The 95/8% Notes are guaranteed by all of our existing domestic restricted subsidiaries. Upon issuance, we were required to pay $28.9 million per year in interest on the then outstanding 95/8% Notes. As of December 31, 2010 and September 30, 2011, accrued interest on the 95/8% Notes was $1.2 million and $7.0 million, respectively. The discount is being amortized to interest expense over the term of the 95/8% Notes based on the effective interest method. For each of the three and nine months ended September 30, 2010 and 2011, approximately $48,000 and $0.1 million, respectively, of the discount has been recognized as interest expense.

On September 6, 2011, we repurchased $5.0 million of the 95/8% Notes for $5.1 million, or at a price equal to 1027/8% of the face value. This transaction resulted in a $0.3 million pre-tax loss on the early retirement of debt, including approximately $26,000 of unamortized discount and $0.1 million of bond issues costs associated with the 95/8% Notes.

On June 1, 2011, we redeemed an additional $17.5 million of the 95/8% Notes for $18.0 million, or at a price equal to 103% of the face value. This transaction resulted in a $1.1 million pre-tax loss on the early retirement of debt, including $0.1 million of unamortized discount and $0.5 million of bond issues costs associated with the 95/8% Notes.


Information regarding retirements of the 95/8% Notes are as follows:



     Bond Issue
     (Dollars in thousands)  

June 1, 2010

     $17,500       $ 525       $ 105       $ 417   

December 1, 2010

     12,500         375         70         334   

June 1, 2011

     17,500         525         93         472   

September 6, 2011

     5,000         144         26         135   

The carrying value of the 95/8% Notes was $268.5 million and $246.2 million at December 31, 2010 and September 30, 2011, respectively.

Summary of long-term debt obligations

Long-term debt consisted of the following:


     As of December 31, 2010     As of September 30, 2011  
     (Dollars in thousands)  

Revolver under senior credit facility

   $ 35,000      $ 30,500   

95/8% senior secured second lien notes due 2016

     268,479        246,238   

Capital leases and other loans

     1,048        967   






     304,527        277,705   

Less current portion

     (111     (119






   $ 304,416      $ 277,586   







In addition to the amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2011:



Outstanding borrowings of $30.5 million under the Revolver, with interest payments due at LIBOR plus 3.50% or at prime rate plus 2.50%;



$247.5 million 95/8% Notes with semi-annual interest payments at an annual rate of 95/8%; and



Commitment fees of 0.75% on the unused portion of the Revolver.

Other Debt

We lease various office equipment under agreements that are accounted for as capital leases. The liability recorded at December 31, 2010 and September 30, 2011 represents the present value of future commitments under these lease agreements.

Maturities of Long-Term Debt

Principal repayment requirements under all long-term debt agreements outstanding at September 30, 2011 for each of the next five years and thereafter are as follows:


For the Twelve Months Ended September 30,    (Dollars in thousands)  


   $ 119   













   $ 277,705