Funds find broadcasting to be a good hedge

Wall Street's hedge funds have discovered radio and TV lending as a way to make a good return in this sideways stock market.

"The hedge funds are crowding into the industry in a big, big way. We're doing a ton of business with hedge fund lenders that are basically stretching," broker Elliot Evers of Media Venture Partners told us. "We just did a TV deal and got the last dollar out on the senior loan with seven times cash flow - - quite high, historically, for television. And it was pretty well priced, it was like LIBOR plus 700 basis points or something like that. So it's an historic moment here."

Who are these hedge funds? Evers says both HBK out of Dallas and Highbridge out of New York are active in funding broadcast deals.

"These guys have got billions of dollars under management. They look around and they say, hey, how bad is this, we'll take a senior secured position in the broadcasting business, which we like - - it has barriers to entry, it has pretty good residual asset values, so even if it hits the fan we're probably not going to get hurt on our principal - - and we can lend at LIBOR plus 600-700 basis points, which is like 9-10% today, on a floating basis and get a very good yield relative to what our investor/client base is looking for from the stock market. We can take a little more risk and get a fair amount more return. So that volume of cheap money, which is variable rate money, but nonetheless cheap today, is crowding out the senior lenders and even the asset-based lenders - - the GEs, the CITs, those folks - - they're having a tough time competing with the hedge funds and they're also underpricing the mezzanine funds - - BIA, ABRY and people like that. You put that together with scarcity and you're seeing people stretch, stretch in a big way, because when you pay less interest you can pay more for the assets that you're buying," Evers said.

At Media Services Group, broker Bob Maccini, himself a former lending officer, told us it's not really new for the hedge funds to be in broadcasting - - that Highbridge in particular has been in the game for many years. Maccini agrees that Highbridge has been able to stretch further than many others as a senior lender, which may reduce the amount of equity or mezzanine debt required. "It's kind of a high-priced do more than your bank or finance company will do," he said of the loan terms.

RBR observation:
Like so many things in life, it all depends on what your needs are. If you have lots of equity, qualify for bank rate financing and only need to borrow 5-6 times cash flow for an acquisition, you won't be looking at this option. But many young companies have to stretch another turn or two to make an acquisition possible - - so this is something else to investigate.