Quarterly report pursuant to Section 13 or 15(d)

LONG-TERM DEBT

v3.7.0.1
LONG-TERM DEBT
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
NOTES PAYABLE AND 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.
 
6.75% Senior Secured Notes
 
On May 19, 2017, we issued in a private placement the Notes, which were guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless earlier redeemed or repurchased. Interest accrues on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.
 
The Notes and the ABL Facility are secured by liens on substantially all of our and the Subsidiary Guarantors’ assets, other than certain excluded assets. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantor’s accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Priority Collateral”). The Notes are secured by a first-priority lien on substantially all other assets of ours and the Subsidiary Guarantors (the “Notes Priority Collateral”). There is no direct lien on our Federal Communications Commission (“FCC”) licenses to the extent prohibited by law or regulation.
 
We may redeem the Notes, in whole or in part, at any time on or after June 1, 2020 at a price equal to 100% of the principal amount of the 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, 2020, we may redeem some or all of the Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the Notes, 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 Notes before June 1, 2020 with the net cash proceeds from certain equity offerings at a redemption price of 106.75% 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 Notes per twelve month period before June 1, 2020 at a redemption price of 103% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date.
 
The indenture relating to the Notes (the “Indenture”) 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.
 
The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days in payment of interest on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (vii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default.
 
We are required to pay $17.2 million per year in interest on the Notes. As of June 30, 2017, accrued interest on the Notes was $2.0 million.
 
We incurred 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 the three and six month periods ended June 30, 2017, $0.1 million of debt issuance costs associated with the Notes were recognized as interest expense.
 
Asset-Based Revolving Credit Facility
 
On May 19, 2017, the Company also entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us, as a borrower, 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 the Prior Facility and related fees and expenses. Going forward, the proceeds of the ABL Facility will be 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 May 19, 2022, 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 at a rate equal to a base rate or LIBOR rate 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 rate 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 of 0.25% to 0.375% per year.
 
The ABL Facility is secured by a first-priority lien on the ABL Priority Collateral and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on the Company’s 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 the ability of the borrowers and their 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.
 
We incurred debt issue costs of $0.3 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 the three and six month periods ended June 30, 2017, $12,000 of debt issue costs associated with the Notes were recognized as interest expense. At June 30, 2017, the blended interest rate on amounts outstanding under the ABL Facility was 2.97%.
 
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.
 
Prior Term Loan B and Revolving Credit Facility
 
Our prior credit facility consisted 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 was amortized to non-cash interest expense over the life of the loan using the effective interest method. For each of the three months ended June 30, 2017 and 2016, approximately $26,000 and $52,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense. For each of the six months ended June 30, 2017 and 2016, approximately $74,000 and $104,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense.
 
The Term Loan B had a term of seven years, maturing in March 2020. On May 19, 2017, we used the net proceeds of the Notes and a portion of the ABL Facility to fully repay amounts outstanding under the Term Loan B of $258.0 million and under the Revolver of $4.1 million. We recorded a loss on the early retirement of long-term debt of $2.1 million, which included $1.5 million of unamortized debt issuance costs on the Term Loan B and the Revolver and $0.6 million of unamortized discount on the Term Loan B.
 
The following payments or prepayments of the Term Loan B were made during the year ended December 31, 2016 and through the date of the termination, including interest through the payment date as follows:
 
Date
 
Principal Paid
 
Unamortized Discount
 
 
 
(Dollars in Thousands)
 
May 19, 2017
 
$
258,000
 
$
550
 
February 28, 2017
 
 
3,000
 
 
6
 
January 30, 2017
 
 
2,000
 
 
5
 
December 30, 2016
 
 
5,000
 
 
12
 
November 30, 2016
 
 
1,000
 
 
3
 
September 30, 2016
 
 
1,500
 
 
4
 
September 30, 2016
 
 
750
 
 
—
 
June 30, 2016
 
 
441
 
 
1
 
June 30, 2016
 
 
750
 
 
—
 
March 31, 2016
 
 
750
 
 
—
 
March 17, 2016
 
 
809
 
 
2
 
 
Debt issuance costs were amortized to non-cash interest expense over the life of the Term Loan B using the effective interest method. For each of the three months ended June 30, 2017 and 2016, approximately $71,000 and $141,000, respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense. For each of the six months ended June 30, 2017 and 2016, approximately $203,000 and $283,000 respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense.
 
Debt issuance costs associated with the Revolver were recorded as an asset in accordance with ASU 2015-15. The costs were amortized to non-cash interest expense over the five year life of the Revolver using the effective interest method based on an imputed interest rate of 4.58%. For each of the three month periods ended June 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $9,000 and $17,000. For each of the six month periods ended June 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $26,000 and $35,000.
 
Summary of long-term debt obligations
 
Long-term debt consisted of the following:
 
 
 
As of December 31, 2016
 
As of June 30, 2017
 
 
 
(Dollars in thousands)
 
6.75% Senior Secured Notes
 
$
–
 
$
255,000
 
Less unamortized debt issuance costs based on imputed interest rate of 7.08%
 
 
–
 
 
(6,199)
 
6.75% Senior Secured Notes net carrying value
 
 
–
 
 
248,801
 
Asset-Based Revolving Credit Facility principal outstanding
 
 
–
 
 
10,000
 
Term Loan B principal amount
 
 
263,000
 
 
–
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 4.78%
 
 
(2,371)
 
 
–
 
Term Loan B net carrying value
 
 
260,629
 
 
–
 
Revolver principal outstanding
 
 
477
 
 
–
 
Capital leases and other loans
 
 
568
 
 
521
 
Long-term debt and capital lease obligations less unamortized debt issuance costs
 
 
261,674
 
 
259,322
 
Less current portion
 
 
(590)
 
 
(10,116)
 
Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion
 
$
261,084
 
$
249,206
 
 
In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of June 30, 2017:
Outstanding borrowings of $10.0 million under the ABL Facility, with interest payments due at LIBOR plus 1.5% to 2.0% per annum;
$255.0 million aggregate principal amount of Notes with semi-annual interest payments at an annual rate of 6.75% ; and
Commitment fee of 0.25% to 0.375% on the unused portion of the ABL Facility.
 
Other Debt 
We have several capital leases related to office equipment. The obligation recorded at December 31, 2016 and June 30, 2017 represents the present value of future commitments under the capital lease agreements.
 
Maturities of Long-Term Debt and Capital Lease Obligations
 
Principal repayment requirements under all long-term debt agreements outstanding at June 30, 2017 for each of the next five years and thereafter are as follows:
 
 
 
Amount
 
For the Twelve Months Ended June 30,
 
(Dollars in thousands)
 
2018
 
$
10,116
 
2019
 
 
106
 
2020
 
 
107
 
2021
 
 
117
 
2022
 
 
75
 
Thereafter
 
 
255,000
 
 
 
$
265,521