There's an increased number of lenders looking to write loans to radio and TV station owners and buyers. The downturn in Wall Street stock values for broadcasters isn't deterring that enthusiasm from the financing side. Here's a conversation from a panel of experienced broadcast lenders assembled by RBR/TVBR: Dave Meier of Wells Fargo Foothill, Steve Healey of CapitalSource Finance LLC and Robert Malone of GE Commercial Finance, Global Media & Communications. They were questioned by RBR/TVBR's Jack Messmer and Mark Fratrik of BIA Financial Network.
MESSMER: Looking at more of a macro picture, what in the economy are you concerned might make the market for radio and television stations suddenly contract and make the financing that's highly competitive right now become much harder to get?
MEIER: We look at individual transactions, so individually we're going to focus on the characteristic of that transaction. I think for radio, if we see a material drop in time spent listening or we start to see a contraction of radio share of the advertising dollar which would take, I think it's been although I don't know if it's changed in the last couple of years, it's generally been pretty steady. I think those are two things. Time spent listening has been declining for I don't know how long. If you start to see that really, really start to drop I think that should be a big red flag. If the advertising dollar is getting a smaller piece of the pie certainly another big red flag. On the TV side I'm not really sure. I think that again the issue is the stability of revenue and cash flow and value. You start to see things driving value down for some reason, certainly that would be a cautionary note for us.
MALONE: We keep track of projections for ad spending and any significant volatility or changes to the historical trends there would certainly be something to monitor pretty closely. The other thing I might say is just any kind of macro event or shock to the system that would change the abundance of capital that is currently out there today would certainly change the dynamics pretty drastically.
MEIER: And I'll add to that from a macro perspective: interest rates. All of our institutions have our own assumptions about interest rates and we built them in typically to our lending decisions but if interest rates were to spike up dramatically it certainly would impact companies that borrow a lot of money and it would impact the amount of interest they can paid, the amount of debt they could service and the amount of access to capital. It would limit the access to capital for certainly radio and TV borrowers.
FRATRIK: Is the amount of money that you're willing to lend on a deal are they in the same range for TV as it is for radio, the 50 to 60%? Is there something different about TV lending makes it a little bit less or more?
MEIER: We use the same guidelines for radio and TV. We use the same guidelines which for us again is five times total debt to cash flow. The difference is that that TV deals that we tend to see do tend to be more developmental. They're not major market transactions. Our loan to value guidelines, while they are the same sort of 50 to 60%, we would tend to be probably a little more conservative depending on the nature of the transaction on loan to value.
MALONE: We use the same guidelines as a starting point. Again as we've said multiple times here every transaction is unique and we try to take that into account when we're looking at any radio or TV deal. In terms of TV, obviously there are larger swings in political years typically in TV operator than in a radio operator and that's something that really needs to be taken into account when you're looking at leverage levels and covenants, things of that nature.
HEALEY: We take a similar approach with TV and radio and as Robert said, we adjust for the political, Olympic and other factors that are important to consider.
FRATRIK: What about the build out in digital facilities for television. Can any of you go into a little more explicit of what the typical deal is? What you look for in that? Is there a certain payback period if and in the typical broadcast transaction?
HEALEY: Well I guess in terms of the digital build-out we assume that it's either completed or will be completed for each of our borrowers because they have to. We look at it as something that needs to happen. Therefore, if it has to happen, the payback analysis frankly isn't critical but we just sort of factor that use of proceeds, if you will, into our overall analysis of the credit.
MALONE: I think Steve pretty much covered that. We have a similar approach. Something you certainly need to take into account and make sure that it's captured.
