NOTES PAYABLE AND LONG-TERM DEBT
|3 Months Ended|
Mar. 31, 2013
|NOTES PAYABLE AND LONG-TERM DEBT||
NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT
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.
Term Loan B and Revolving Credit Facility
On March 14, 2013, we entered into a new 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 has a term of seven years, in which the principal amount of the Term Loan 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 beginning on September 30, 2013 for the Term Loan B. The Revolver has a term of five years. We believe that the borrowing capacity under our Term Loan B and Revolver allow us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements.
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.
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 starts at 1.50 to 1.0 and steps up to 2.50 to 1.0 by 2016 and a maximum leverage ratio, which starts 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; (vii) to merge or consolidate with, or dispose of all or substantially all assets to, a third party. As of March 31, 2013, our leverage ratio was 5.64 to 1 and our interest coverage ratio was 2.26 to 1. We were in compliance with our debt covenants under the credit facility at March 31, 2013, and we remain in compliance.
Senior Secured Second Lien Notes
On December 1, 2009, we issued $300.0 million principal amount of 9 5/8% 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 9 5/8% Notes that are due in full in December 2016. The 9 5/8% 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 9 5/8 % Notes. As of December 31, 2012 and March 31, 2013, accrued interest on the 9 5/8% Notes was $0.9 million and $25,000, respectively. The discount was being amortized to interest expense over the term of the 9 5/8% Notes based on the effective interest method. For each of the three months ended March 31, 2012 and 2013, approximately $45,000 and $37,000, respectively, of the discount has been recognized as interest expense.
On December 12, 2012, we redeemed $4.0 million of the 9 5/8% Notes for $4.1 million, or at a price equal to 103% of the face value. This transaction resulted in a $0.2 million pre-tax loss on the early retirement of debt, including approximately $17,000 of unamortized discount and $0.1 million of bond issue costs associated with the 9 5/8% Notes.
On June 1, 2012, we redeemed $17.5 million of the 9 5/8% Notes for $18.0 million, or at a price equal to 103% of the face value. This transaction resulted in a $0.9 million pre-tax loss on the early retirement of debt, including approximately $80,000 of unamortized discount and $0.3 million of bond issue costs associated with the 9 5/8% Notes.
Information regarding repurchases and redemptions of the 9 5/8% Notes are as follows:
On March 14, 2013, we tendered for $212.6 million of the 9 5/8% Notes for $240.3 million, or at a price equal to 110.65% of the face value. The redemption was pursuant to the tender offer launched on February 25, 2013. We paid $22.7 million for this redemption resulting in a $26.9 million pre-tax loss on the early retirement of debt, which included approximately $0.8 million of unamortized discount and $3.1 million of bond issue costs associated with the 9 5/8% Notes. We issued a notice of redemption to redeem any 9 5/8% Notes that remain outstanding after the expiration date of the Tender Offer. As of March 31, 2013, $0.9 million in aggregate principal of the 9 5/8% Notes remained outstanding. We issued irrevocable instructions to The Bank of New York Mellon Trust Company, N.A., as trustee for the Notes to redeem on June 3, 2013 these outstanding Notes. We deposited $1.0 million with the Trustee to satisfy and discharge Salem’s obligations under the Indenture. Restricted cash of $1.0 million as of March 31, 2013, includes $0.9 in aggregate principal of the 9 5/8% Notes outstanding, the redemption price at 103% of the face value and all accrued interest due as of the June 3, 2013 discharge date. The carrying value of the 9 5/8% Notes was $212.6 million and $0.9 million at December 31, 2012 and March 31, 2013, respectively.
Terminated Senior Credit Facility
On December 1, 2009, our parent company, Salem Communications Corporation entered into a Revolver (“Terminated Revolver”). We amended the Terminated Revolver on November 1, 2010 to increase the borrowing capacity from $30 million to $40 million. The amendment allowed 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 9 5/8% Notes. The calculation of the “Available Amount” also pertained to the payment of dividends when the leverage ratio is above 5.0 to 1.
On November 15, 2011, we completed the Second Amendment of the Terminated Revolver to among other things, (1) extend the maturity date from December 1, 2012 to December 1, 2014, (2) change the interest rate applicable to LIBOR or the Wells Fargo base rate plus a spread to be determined based on our leverage ratio, (3) allow us to borrow and repay unsecured indebtedness provided certain conditions are met and (4) include step-downs related to our leverage ratio covenant. We incurred $0.5 million in fees to complete this amendment, which were being amortized over the remaining term of the agreement. The applicable interest rate relating to the amended credit agreement was LIBOR plus a spread of 3.0% per annum or the Base Rate plus a spread of 1.25% per annum, which was adjustable based on our leverage ratio. If an event of default occurred, the interest rate may be increased by 2.0% per annum. Details of the change in our rate based on our leverage ratio are as follows:
The Terminated Revolver included a $5 million subfacility for standby letters of credit and a subfacility for swing line loans of up to $5 million, subject to the terms and conditions of the credit agreement relating to the Terminated Revolver. In addition to interest charges outlined above, we paid a commitment fee on the unused balance based on the Applicable Fee Rate in the above table. The Terminated Revolver included a $5 million subfacility for standby letters of credit and a subfacility for swing line loans of up to $5 million, subject to the terms and conditions of the credit.
The Terminated Revolver was terminated on March 14, 2013 upon entry into our new senior secured credit facility. This termination resulted in a $0.8 million pre-tax loss on the early retirement of debt related to unamortized credit facility fees. At March 31, 2013, there was no outstanding balance on the Terminated Revolver.
Terminated Subordinated Credit Facility with First California Bank
On May 21, 2012, we entered into a Business Loan Agreement, Promissory Note and related loan documents with First California Bank (the “FCB Loan”). The FCB Loan was an unsecured, $10.0 million fixed-term loan with a maturity date of June 15, 2014. The interest rate for the FCB Loan (“Interest Rate”) was variable and was equal to the greater of: (a) 4.250% or (b) the Wall Street Journal Prime Rate as published in The Wall Street Journal and reported by FCB plus 1%.
We were required to repay the FCB Loan as follows: (a) twenty-three (23) consecutive monthly interest payments based upon the then-current principal balance outstanding at the then-current Interest Rate commencing on September 15, 2012; (b) seven quarterly consecutive principal payments of $1.25 million each commencing on September 15, 2012; and (c) one final principal and interest payment on June 15, 2014 of all outstanding and unpaid interest and principal as of such maturity date. The FCB Loan could be prepaid at any time subject to a minimum interest charge of Fifty Dollars ($50). If an event of default occurs on the FCB Loan, the Interest Rate may increase by 5.00% per annum.
The FCB loan was terminated on March 14, 2013 upon entry into our new senior secured credit facility. This termination resulted in a $33,000 pre-tax loss on the early retirement of debt for unamortized credit facility fees. At March 31, 2013, there was no outstanding balance on the FCB Loan.
Subordinated Debt due to Related Parties
On November 17, 2011, we entered into subordinated lines of credit with Edward G. Atsinger III, Chief Executive Officer and director of Salem, and Stuart W. Epperson, Chairman of Salem’s board of directors. Pursuant to the related agreements, Mr. Epperson has committed to provide an unsecured revolving line of credit to Salem in a principal amount of up to $3 million, and Mr. Atsinger has committed to provide an unsecured revolving line of credit in a principal amount of up to $6 million. On May 21, 2012, we entered into a subordinated line of credit with Roland S. Hinz, a Salem board member. Mr. Hinz committed to provide an unsecured revolving line of credit in a principal amount of up to $6.0 million. On September 12, 2012, we amended and restated the original subordinated line of credit with Mr. Hinz to increase the unsecured revolving line of credit by $6.0 million for a total line of credit of up to $12.0 million (together, the “Subordinated Debt due to Related Parties”).
The proceeds of the subordinated lines of credit could be used to repurchase a portion of Salem’s outstanding 95/8% Notes. Outstanding amounts under each subordinated line of credit will bear interest at a rate equal to the lesser of (1) 5% per annum and (2) the maximum rate permitted for subordinated debt under the Revolver referred to above plus 2% per annum. Interest is payable at the time of any repayment of principal. In addition, outstanding amounts under each subordinated line of credit must be repaid within three (3) months from the time that such amounts are borrowed, with the exception of the subordinated line of credit with Mr. Hinz, which must be repaid within six (6) months from the time that such amounts are borrowed. The subordinated lines of credit do not contain any covenants. On March 14, 2013, we repaid these lines of credit upon entry into our new senior secured credit facility. At March 31, 2013, there was no outstanding balance on the Subordinated Debt due to Related Parties.
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 March 31, 2013:
We have several capital leases related to various office equipment. The obligation recorded at December 31, 2012 and March 31, 2013 represents the present value of future commitments under the lease agreements.
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at March 31, 2013 for each of the next five years and thereafter are as follows:
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef