Annual report pursuant to Section 13 and 15(d)

Long-Term Debt

v3.22.0.1
Long-Term Debt
 12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
Long-Term Debt
NOTE 11. LONG-TERM DEBT
Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional 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, 2020
 
 
December 31, 2021
 
 
  
(Dollars in thousands)
 
7.125% Senior Secured Notes
    $ —       
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
      —       
 
(3,844
) 
    
 
 
     
 
 
  
7.125% Senior Secured Notes net carrying value
      —       
 
110,887
 
    
 
 
     
 
 
  
6.75% Senior Secured Notes
      216,341     
 
60,174
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
      (2,577 )    
 
(480
) 
    
 
 
     
 
 
  
6.75% Senior Secured Notes net carrying value
      213,764     
 
59,694
 
    
 
 
     
 
 
  
Asset-Based Revolving Credit Facility principal outstanding (1)
      5,000        —    
    
 
 
     
 
 
  
Long-term debt less unamortized discount and debt issuance costs
    $ 218,764     
$
170,581
 
    
 
 
     
 
 
  
Less current portion
      (5,000 )    
 
—  
 
    
 
 
     
 
 
  
Long-term debt less unamortized discount and debt issuance costs, net of current portion
    $ 213,764     
$
170,581
 
    
 
 
     
 
 
  

(
1
)
As of December 31, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $25.0 million, no outstanding borrowings, and $0.3 million of outstanding letters of credit, resulting in a $23.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.99% at December 31, 2020
,
and December 31, 2021, respectively.

In addition to the outstanding amounts listed above, we also have interest
obligations
related to our long-term debt as follows as of December 31, 2021:
 
  •  
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
  •  
$60.2 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
 
  •  
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
7.125% Senior Secured Notes
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
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 as of, and accrued and unpaid interest, if any, 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
i
ndenture, plus accrued and unpaid interest, if any, 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, 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 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, we are required to pay $8.2 million per year in interest. As of December 31, 2021
,
accrued interest on the 2028 Notes was $0.7 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 December 31, 2021, we were, and we remain, in compliance with all of the covenants under th
e
 
i
ndenture.
We
record
ed
 debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes. During twelve-month period ended December 31, 2021, $0.3 million of debt issuance costs, discount and delayed draw associated with the Notes was amortized to interest
expense.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
6.75% Senior Secured Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (“Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is 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.
The indenture relating to the 2024 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries 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 of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At December 31, 2021, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During twelve-month period ended December 31, 2021, and 2020, $0.6 million and $0.7 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.
Based on the balance of the 2024 Notes outstanding of $60.2 million, we are required to pay $4.1 million per year in interest on the 2024 Notes. As of December 31, 2021, accrued interest on the 2024 Notes was $0.3 million.
We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity, and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
As described above, on September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the $112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.
In addition to the exchange
 on Sep
tember 10, 2021
, we repurchased an additional $43.3 million
 in total
of the 2024 Notes for $44.0 million in cash, recognizing a net loss of $1.0
million
after adjusting for bond issuance costs
through multiple transactions
during the second half of
2021.
Based on the then existing market conditions, we completed repurchases of our 6.75% Senior Secured Notes at amounts less than face value as follows:
 
Date
  
Principal
Repurchased
 
  
Cash
Paid
 
  
% of Face
Value
 
 
Bond Issue
Costs
 
  
Net Gain
(Loss)
 
 
  
(Dollars in thousands)
 
December 10, 2021   $ 35,000     $ 35,591       101.69 %    $ 321     $ (911 ) 
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  
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  
   
 
 
    
 
 
            
 
 
    
 
 
  
    $ 82,000     $ 79,555             $ 1,105     $ 1,340  
   
 
 
    
 
 
            
 
 
    
 
 
  
Asset-Based Revolving Credit Facility
On May 19, 2017, the company entered into the ABL Facility pursuant to a Credit Agreement (“Credit Agreement”) by and among us and our subsidiaries party 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 five-year $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.
On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a
one-time
waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.
On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.
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 December 31, 2021, the amount available under the ABL Facility was $23.3 million of which none 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 our ability and the ability of our subsidiaries (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 assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.
The Credit Agreement provides for the following events of default: (i) default for
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. At December 31, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.
We
recorded
debt issue costs of $0.9 million that were recorded as an asset and are being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During each of the years ended December 31, 2021
,
and 2020, $0.1 million and $0.2 million of debt issuance costs associated with the ABL Facility was amortized to interest expense, respectively. At December 31, 2021, the blended interest rate on amounts outstanding under the ABL Facility was 0.0%.
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. At December 31, 2021, we were, and we remain, in compliance with all of the covenants under the Credit Agreement.
Maturities of Long-Term Debt and Capital Lease Obligations
Principal repayment requirements under all long-term debt agreements outstanding at December 31, 2021 for each of the next five years and thereafter are as
follows:
 
 
  
Amount
 
For the Year Ended December 31,
  
(Dollars in thousands)
 
2022
   
$
—
 
2023
      —  
2024
      60,174  
2025
      —  
2026
      —  
Thereafter
      114,731  
    
 
 
  
     $ 174,905