Entercom cut net debt $17 million in Q1, plans further de-levering

By Paul Deckelman

New York, May 10 - Entercom Communications Corp. reduced its net leverage by more than $17 million in the first quarter and expects to continue using its free cash flow to de-lever its balance sheet.

The Bala Cynwyd, Pa.-based radio station group owner's president and chief executive officer, David J. Field, told analysts on its conference call on Thursday following the release of results for the quarter ended March 31 that using free-cash flow to continue de-levering is its "primary goal" and its "principal objective."

According to its 10-Q filing with the Securities and Exchange Commission, Entercom ended the first quarter with a consolidated leverage ratio of debt versus operating cash flow of 5.76 times, down from 6.0 times at the end of 2011 and 6.4 times at the end of the 2011 third quarter.

Field declared, "We would like to get back to the mid-4s in terms of leverage."

However, the company's executive vice president-operations and chief financial officer, Stephen F. Fisher, said in answer to an analyst's question on whether the company has a leverage target for the full year that "given the free cash flow-generation of the business model, you can see the de-levering that we've had and will continue to have in the future. But we don't provide any forward-looking leverage point."

When asked by an analyst about the possibility of repatriating cash back to the shareholders, CEO Field said: "It's absolutely something that I believe our board will look at as our leverage allows."

Net debt down $17 million

Entercom ended the first quarter with total debt on its balance sheet of $595.6 million and some $11 million of cash and equivalents, for a net debt figure of $584.6 million.

At the end of 2011, total debt stood at $605.6 million, versus $3.6 million of cash and equivalents, for $602 million of net debt.

Fisher largely attributed the $17.4 million net-debt reduction for the quarter to a reduction in working capital as well as the timing of Entercom's semi-annual cash payments on its bonds.

But he cautioned that "that amount of debt paydown would not be expected in the second quarter."

Fisher noted that back in November of 2011, Entercom refinanced its debt and pushed out maturities and re-set covenants, as its prior credit facility neared its expiration date.

The company went into a new $425 million senior secured credit facility, largely consisting of a $375 million seven-year term loan priced at 500 basis points over Libor, stepping down to Libor plus 475 bps when leverage falls below 5.0 times, and with a 1.25% Libor floor. The loan priced at 98 on Nov. 17. The credit facility also includes a $50 million five-year revolving credit line.

That credit facility was upsized from $395 million, including a $345 million term loan and a $50 million revolver, when a concurrent junk bond offering was reduced to $220 million from an originally shopped $250 million. Those 10½% senior notes priced at 98.672 on Nov. 18 to yield 10¾%.

Debt down but interest rises

Fisher said that the old credit facility that was replaced in November "had extremely favorable interest rate pricing. Unfortunately, we had to re-set that to the market. As a result of that, this has resulted in higher interest expense, even with continually lowered overall debt."

First-quarter net interest expense was $14.1 million. That included some $1.1 million of non-cash deferred financing costs, which Fisher called "a ballpark indicator of future quarterly non-cash amortization of that deferred financing cost, which we will include each quarter in that line item."

There was also about $800,000 in expense from Entercom's last remaining interest-rate swap. The CFO acknowledged that on that swap, "we paid a fixed rate that's about 3% higher than current floating rates. It's important to note that this swap expires later this quarter, which will benefit future interest expense."

Fisher said, "If you net out those moves, along with debt paydown, we would expect second-quarter net interest expense to be reported about $13.6 million."

He said that future quarters' interest expense "will; fluctuate based on debt paydown," as well as the timing of completion of the company's $25 million purchase of San Francisco radio station KBLX-FM.

Big deal by the Bay

That transaction was announced last month and is scheduled to close sometime later this year, subject to certain customary closing conditions, including getting the approval of the Federal Communications Commission.

Pending that approval, Entercom, which already operates three other radio stations in San Francisco, took control of KBLX on May 1. It is operating it under an interim agreement, making monthly lease payments to the current owner, Inner City Media Corp., which is currently in a bankruptcy reorganization.

Fisher said that Entercom would fund the tuck-in acquisition with free cash flow and drawing from the revolver, as needed. He cited the company's expectations of "tremendous operating synergies" from the deal and projected that "we expect it to be neutral on leverage going forward."

Field said, "KBLX was a unique situation which presented itself, and again, for reasons we've talked about on this call, we found too compelling to pass up - but it doesn't diminish our focus on our principal objective, of using free cash flow to de-lever.

In answer to an analyst's query, Fisher said that the possible refinancing of the company's current debt is "certainly something that we are watching and would look at along with consultation with the board in the months ahead, if we think opportunistically it's beneficial to shareholders."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.