Investors Scooping Up Discounted Broadcast Bank Debt
Borrowing money to finance purchases of broadcast assets remains difficult, but some in the industry see a wave of transactions coming. Meanwhile, broadcasters’ secured bank debt has proven popular with investors of all sorts, some of whom may view it as a path to owning broadcast properties, said brokers and others who work on and advise on deals. “There are a lot of people that are trying to buy debt,” said President Frank Kalil of broker Kalil & Co. “If you see a station that’s worth $30 million and it’s got $15 million worth of debt and you can buy that debt for, say, $10 million, that’s a pretty good deal,” he said. “You can do very well on an interest rate of return and perhaps end up with the asset."
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There may be a number of reasons investors are gravitating to broadcasters’ bank debt rather than equity or publicly traded bonds, brokers and others said. Some banks are eager to sell. Wells Fargo recently unloaded nearly its entire broadcast portfolio in a series of deals, said David Schutz, an appraiser with Hoffman-Schutz Media. And the prices have been right for buyers, he said. “There have been some transactions consummated with discounts of 75 percent."
Bank debt is a safer investment, said Shelly Lombard, senior high-yield credit analyst with Gimme Credit. “Should anything go wrong, if you're holding bank debt you can take control of the assets and sell them to somebody,” she said. “If you have questions about long-term viability or just the long-term prospects … it’s always safer to be in the bank debt than in the bonds."
Most of the “wholesale” bank debt deals along the lines of Wells Fargo’s have already been made, Schutz said. Smaller investments remain available, he said. “There certainly are individual loans on the books that financial institutions would be happy to discuss selling on a case by case basis, and they certainly would include a discount,” Schutz said. In some cases, it’s the broadcaster that’s buying out its own bank lender, he said.
Though borrowing remains difficult, a wave of transactions may be coming, Kalil said. “Idle money produces no revenue, and there is an awful lot of idle money,” he said. Though major financial institutions still aren’t lending, some new sources of debt financing are appearing, though offering higher interest rates, he said.
Looming changes in the tax laws that affect private-equity income could also spur some deal activity, if investors want to cash out before higher tax rates kick in next year, said Robert Raciti, who advises private equity investors on media transactions. Investors would have to be selling out at a profit for that strategy to work, and that’s unlikely with current low values, said broker Robert Heymann of Media Services Group. “To benefit from the reduced capital gains tax rates, which may change next year, you need to sell your broadcast properties at a gain, and nobody is doing that,” he said. “It’s very unlikely people would be selling anything at a gain at this point.”