The only analyst that really follows ETM issued a research report today that lowered price expectations for the stock based on reduced earnings forecasts largely driven by an expected increase in interest rate expense resulting from the anticipated debt refinancing. Only problem is that even if you used the most conservative high yield comps and their bank/bond pricing assumptions (adjusted for some incremental spread), the interest expense projection is still too high by approximately $20mm and greatly underestimates the company's EPS and CF/share cited in the report. As today's share price decline could impact the company's ability to price its bank and bond deals, I would expect the company to ask the analyst to issue a correction. I would also expect the analyst to comply quickly as it seems like the only right thing to do.
Within 6 months, and assuming no double dip recession, I see the company trading on proforma YE 2012 numbers... and I see the YE 2012 trailing #'s as the following:
Interest $46.5mm (Cash interest)
FCF ~$62mm (4mm capx, 5mm non-cash comp)
Net Debt $532mm
Shares out 38.5mm
FCF Mult 5x
Resulting Share Price $8.05
By this time, net debt will have dropped to below 5x and the company will continue to amortize more than 10% of debt annually. Assuming a stronger US recovery, more normal financial markets, and the potential for dividends/share buybacks, I could easily envision a 6-8x FCF valuation multiple ($10-$13/share) by early 2013, which would result in an Ebitda multiple to 8.5x-9.5x... more in line with private M&A multiples.
I was expecting close $48-$50mm in pro-forma interest expense (versus sell-side crappy analyst report that stated it would be $65mm). With the successful bank and HY financing, the interest expense will be closer to $45mm (the bank and HY deal were issued at a discount so the yields are slightly higher on each - bank around 6.5% and HY bond deal = 10.75%). So this number is better than I was expecting. Though interest expense has increased significantly, I believe it is a strong positive development for the stock as the markets were concerned whether the company could successfully secure financing and at what price? With long term financing now in place, company can get back to operations and using the $100+mm ebitda and $60mm in free cash flow to aggressively amortize debt (building equity) and then to begin returning capital to shareholders.
The bank and bond deals have been in the market for some time now and management has been holding meetings with investors as well. While only tentative, price talk on these deals has been discussed and published in various places by several news services. If one looked you would have found this information.
"both better than expected. By Monday all financing concerns related to this company should be addressed and the proforma interest expense should come in below the level laid out above. Positive developments for the stock. "
could you please clarify why it is "better than expected" and why the numbers mentioned are "positive developments for the stock".
Last but not least, obviously this is material information. Could you advise where it was publicly available on the 17th?
Well..looks like you knew what you were talking about...The Senior @ 10.5% on $ 220 M...and about 5 1/4 % on balance of $ 375 M...this produces a blended rate of about 7.2% or about $ 42.8 Million/Year ...100% above what they have been paying. I for one just don't understand that in a period of record low interest rates these Radio and media companies have to pay over 10% to borrow money...that is fully secured and interest payments covered 2-3 times by cash flow.....Lee a newspaper company is really getting screwed...they have to give up 13% ownership to get a 15% rate....it is outrageous, scandalous, preposterous...IF I were the CFO...I would tell them to put it where the sun doesn't shine.....ETm is bad enough......
They stated in the CC that they expect to pay a 'significantly higher rate' than their current interest rate. Thats not a big surprise since their current rate is so low (I think under four percent), but they did use the word 'significantly'.
They gave no estimate, but they said to look at recent refi/financings in the radio sector to get an idea of what they might be paying.
They stated they are working on it now, and I think they said they thought it would be done during the fall, but I'm not sure I got that right.
Anyone know any recent financing deals in radio to get an idea?
SALM pays close to ten percent, and ROIAK pays a pretty high ratee....but I think there are other more mainsteam radio companies that pay a lower rate.
Cumulus Media (CMLS) is by far the best comp for this company. CMLS is a dedicated radio company and is very leveraged with more than $3B in total debt. The company is levered 3.7x through the bank debt (3.3x if they are given credit for projected synergies from Citadel acquisition), 5.6x through the 2nd lien debt (5.0x with credit for synergies) and 7.1x through the subordinated bonds (6.3x with synergies). The rates they are currently paying on each of these pieces are approximately 5.5% on the bank, 7% on the 2nd lien and 7.75% on the sub debt. However, each of these instruments are trading at a discount in the secondary market, resulting in higher market adjusted yields ( call it 6% on bank, 8% on 2nd lien and 9.5% on sub debt). Given that ETM will be less levered to CMLS on a non-adjusted basis and similarly levered if CMLS is given credit for all of the synergies that are on the come, ETM should be able to get their deals done at rates around this level (I actually think they should be able to do better). The ETM bank deal will probably be $350mm and the bond deal $250mm in size. If you make relatively conservative assumptions and use 6.5% on the bank and 10% on the bonds, that results in about $48mm in interest expense (versus the $65mm in the analyst report yesterday... geez!). On $115+mm in Ebitda for 2012, that still leaves more than $65mm in FCF (if the company continues to pay $8mm in non-cash comp, FCF increases to nearly $75mm next year). As a result, the company will continue to deleverage quickly post-deals and the equity is cheap based on any valuation metric.