LONG-TERM DEBT (Block)

12 Months Ended

Dec. 31, 2016

8. LONG-TERM DEBT

(A) Senior Debt

Refinancing

On November 1, 2016, the Company and its wholly owned subsidiary, Entercom Radio LLC, (“Radio”) entered into a $540 million credit agreement (the “Credit Facility”) with a syndicate of lenders and used the proceeds to: (1) refinance its senior secured credit facility (the “Former Credit Facility”) that was comprised of: (a) a term loan component (the “Former Term B Loan”) with $223.0 million outstanding at the date of the refinancing; and (b) a revolving credit facility (the “Former Revolver”) with $3.0 million outstanding at the date of the refinancing; (2) fund the redemption effective December 1, 2016 of the Senior Notes and discharged the indenture (the “Indenture”) governing the Senior Notes; (3) fund $11.6 million of accrued interest and a call premium of $5.8 million on the Senior Notes; and (4) pay transaction costs associated with the refinancing. In the fourth quarter of 2016, the Company wrote off $3.5 million of unamortized deferred financing costs and recorded a loss on the extinguishment of debt of $10.9 million. The loss included the write off deferred financing expense, the call premium on the Senior Notes and the write off of the original issue discount on the Senior Notes.

The Credit Facility is comprised of a revolving credit facility and a term B loan.

The $60 million revolving credit facility (the “Revolver”) has a maturity date of November 1, 2021 and provides for interest based upon the prime rate or the European London Interbank Offered Rate (“LIBOR”) plus a margin. The margin may increase or decrease based upon the Company’s Consolidated Leverage Ratio as defined in the agreement. The initial margin is at LIBOR plus 3.5% or the prime rate plus 2.5%. In addition, the Revolver requires the payment of a commitment fee of 0.5% per annum on the unused amount. The amount available under the Revolver, which includes the impact of outstanding letters of credit, was $59.3 million as of December 31, 2016.

The $480 million term B loan (the “Term B Loan”) has a maturity date of November 1, 2023 and provides for interest based upon the Base Rate or LIBOR, plus a margin. The initial rate is at LIBOR plus 3.5%, with a LIBOR floor of 1.0%, or the Base Rate plus 2.5%. The Base Rate is the highest of: (a) the administrative agent’s prime rate; (b) the Federal Funds Rate plus 0.5%; or (c) the LIBOR Rate plus 1.0%. The facility amortizes: (1) with equal quarterly installments of principal in annual amounts equal to 1.0% of the original principal amount of the Term B Loan; and (2) mandatory yearly prepayments based upon a percentage of Excess Cash Flow as defined in the loan agreement.

The Term B Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, as defined within the agreement, subject to incremental step-downs, depending on the Consolidated Leverage Ratio. Beginning in 2018, the Excess Cash Flow payment will be due in the first quarter of each year, and is based on the Excess Cash Flow and Leverage Ratio for the prior year. The Excess Cash Flow payment due will be included under the current portion of long-term debt, net of any prepayments made.

The Company expects to use the Revolver to: (1) provide for working capital; and (2) provide for general corporate purposes, including capital expenditures and any or all of the following (subject to certain restrictions): repurchases of Class A common stock, repurchases of preferred stock, dividends, investments and acquisitions. The Credit Facility is secured by a pledge of 100% of the capital stock and other equity interest in all of the Company’s wholly owned subsidiaries. In addition, the Credit Facility is secured by a lien on substantially all of the Company’s assets with limited exclusions (including the Company’s real property). The Company’s parent, Entercom Communications Corp., and all of the Company’s subsidiaries, jointly and severally guaranteed the Credit Facility. The assets securing the Credit Facility are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.

The Credit Facility has usual and customary covenants including, but not limited to, consolidated leverage ratios, consolidated interest coverage ratios, limitations on acquisitions, stock repurchases, additional borrowings, and dividends. Specifically, the Credit Facility requires the Company to comply with certain financial covenants which are defined terms within the agreement, including:

a maximum Consolidated Leverage Ratio that cannot exceed 5.0 times through December 31, 2017, which decreases over time to 4.5 times as of September 30, 2018 and thereafter; and

a minimum Consolidated Interest Coverage Ratio of 2.0 times.

As of December 31, 2016, the Company’s Consolidated Leverage Ratio was 3.7 times and the Consolidated Interest Coverage Ratio was 5.1 times.

Failure to comply with the Company’s financial covenants or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.

Management believes that over the next 12 months the Company can continue to maintain compliance with its financial covenants. The Company’s operating cash flow is positive, and management believes that it is adequate to fund the Company’s operating needs and mandatory debt repayments under the Company’s Credit Facility. As of December 31, 2016, the Company is in compliance with all financial covenants and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenants is highly dependent on its results of operations.

Management believes that cash on hand and cash from operating activities will be sufficient to permit the Company to meet its liquidity requirements over the next 12 months, including its debt repayments. The Company cannot determine if and when a new revolving credit line would be entered into to replace the Revolver when it expires on November 1, 2021 as market conditions may impact the timing and the Company’s performance may impact the pricing.

For accounting purposes, a portion of the Former Credit Facility was treated as a debt extinguishment and a portion was treated as a debt modification. As a result of the refinancing, unamortized deferred financing costs were adjusted during the fourth quarter of 2016 as follows: (1) a portion of the Former Term B Loan’s unamortized deferred financing costs of $0.5 million were written off as a net loss on extinguishment of debt; (2) the Former Revolver’s unamortized deferred financing costs of $0.1 million were written off as a net loss on extinguishment of debt; and (3) a portion of the Former Term B Loan’s unamortized deferred financing costs of $1.0 million were deferred (to be amortized under the effective interest rate method over the term of the Term B Loan). In addition, we recorded new deferred financing costs of: (i) $6.9 million for the Term B Loan that will be amortized under the effective interest rate method over the term; and (ii) $1.1 million for the Revolver that will be amortized under the straight-line method over the term.

Lender fees and third party fees incurred as a result of the refinancing which were expensed during the fourth quarter of 2016 were as follows: (1) the amount of lender fees allocable to the extinguished portion of the Former Term B Loan of $0.2 million, which were written off as a net loss on extinguishment of debt; and (2) the amount of third party fees allocable to the modified portion of the Term B Loan of $0.6 million.

Long-term debt was comprised of the following as of December 31, 2016:

			Long-Term Debt
			December 31,
			2016		2015
				(amounts in thousands)
	Credit Facility
		Revolver, due November 1, 2021	$	-	$	-
		Term B Loan, due November 1, 2023		480,000		-
				480,000		-
	Former Credit Facility
		Revolver, due November 23, 2016		-		26,000
		Term B Loan, due November 23, 2018		-		242,750
				-		268,750
	Senior Notes
		10.5% senior unsecured notes, due December 1, 2019		-		220,000
		Unamortized original issue discount		-		(1,731)
				-		218,269
	Other Debt
		Capital lease and other		87		-
Total debt before deferred financing costs				480,087		487,019
	Current amount of long-term debt			(4,817)		(31,832)
	Deferred financing costs (excludes the revolving credit)			(7,619)		(6,463)
Total long-term debt, net of current debt			$	467,651	$	448,724
Outstanding standby letters of credit			$	670	$	670

Financial statements of the subsidiaries are not included in accordance with Rule 3-10 of Regulation S-X as: (1) Entercom Communications Corp., after excluding all subsidiaries (the “Parent Company”), has no independent assets or operations; (2) Radio is a 100% owned finance subsidiary of the Parent Company; (3) the Parent Company has guaranteed the Credit Facility; (4) all of the Parent Company’s direct and indirect subsidiaries other than Radio have guaranteed the Credit Facility; (5) all of the guarantees are full and unconditional (subject to the customary automatic release provisions); and (6) all of the guarantees are joint and several.

Radio, which is a wholly owned subsidiary of the Parent Company, holds the ownership interest in various subsidiary companies that own the operating assets, including broadcasting licenses, permits, authorizations and cash royalties. Radio is the borrower under the Credit Facility. The assets securing the Credit Facility are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.

Under certain covenants, the Company’s subsidiary guarantors are restricted from paying dividends or distributions in excess of amounts defined under the Credit Facility, and the subsidiary guarantors are limited in their ability to incur additional indebtedness under certain restrictive covenants. See Note 21 for financial statements of the Parent Company.

The Former Credit Facility

On November 23, 2011, the Company entered into its prior credit agreement with a syndicate of lenders for a $425 million Credit Facility that was initially comprised of: (a) a $50 million Former Revolver (reduced to $40 million in December 2015) that was due to mature on November 23, 2016; and (b) a $375 million Former Term B Loan that was due to mature on November 23, 2018. This Former Credit Facility was paid in full on November 1, 2016.

The Former Credit Facility was secured by a pledge of 100% of the capital stock and other equity interest in all of the Company’s wholly owned subsidiaries. In addition, the Former Credit Facility was secured by a lien on substantially all of the Company’s assets, with limited exclusions (including the Company’s real property).

The Former Term B Loan required mandatory prepayments equal to a percentage of Excess Cash Flow, which was defined within the agreement and was subject to incremental step-downs depending on the Consolidated Leverage Ratio. The payment was due in the first quarter of each year for the prior year and was included under the current portion of long-term debt, net of any prepayments made through December 31, 2016. For purposes of presenting the prior year financial statements, the estimate of the Excess Cash Flow reflects the amounts due under the Former Credit Facility in the first quarter of 2016.

(B) Senior Unsecured Debt

The Senior Notes

In connection with the refinancing described above, on November 1, 2016, the Company issued a call notice to redeem its Senior Notes with an effective date of December 1, 2016. The Company incurred interest in November 2016 on both the Senior Notes and the Credit Facility as the Company placed funds in escrow from November 1, 2016, until the redemption date. On November 1, 2016, the Company deposited the following funds in escrow to satisfy its obligations under the Senior Notes and discharge the Indenture governing the Senior Notes: (1) $220 million to redeem the Senior Notes in full; (2) $11.6 million for accrued and unpaid interest through December 1, 2016; and (3) $5.8 million for a call premium for the early retirement of the Senior Notes. As a result of the refinancing, the Company recorded a $10.1 million loss on extinguishment of debt that included the call premium, unamortized deferred financing expense and the original issue discount.

As background, on November 23, 2011, the Company issued $220.0 million of 10.5% unsecured Senior Notes. The Company received net proceeds of $212.7 million, which included a discount of $2.9 million, and incurred deferred financing costs of $6.1 million. These amounts are amortized over the term under the effective interest rate method. Interest on the Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year.

The Senior Notes were unsecured and ranked: (1) senior in right of payment to the Company’s future subordinated debt; (2) equally in right of payment with all of the Company’s existing and future senior debt; (3) effectively subordinated to the Company’s existing and future secured debt (including the debt under the Company’s Credit Facility), to the extent of the value of the collateral securing such debt; and (4) structurally subordinated to all of the liabilities of the Company’s subsidiaries that did not guarantee the Senior Notes, to the extent of the assets of those subsidiaries.

The components of net interest expense are as follows:

	Net Interest Expense
	Years Ended December 31,
	2016		2015		2014
	(amounts in thousands)

Interest expense	$	33,799	$	34,764	$	34,656
Amortization of deferred financing costs		2,585		2,863		3,860
Amortization of original issue discount of senior notes		312		340		305
Interest income and other investment income		(57)		(6)		-
Total net interest expense	$	36,639	$	37,961	$	38,821

The weighted average interest rate under the Credit Facility (before taking into account the fees on the unused portion of the Revolver) was: (1) 4.5% as of December 31, 2016; and (2) 4.1% as of December 31, 2015.

(D) Interest Rate Transactions

As of December 31, 2016 and 2015, there were no derivative interest rate transactions outstanding.

The Company from time to time enters into interest rate transactions with different lenders to diversify its risk associated with interest rate fluctuations of its variable rate debt. Under these transactions, the Company agrees with other parties (participating members of the Company’s Credit Facility) to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount against the variable debt.

(E) Aggregate Principal Maturities

The minimum aggregate principal maturities on the Company’s outstanding debt (excluding any impact from required principal payments based upon the Company’s future operating performance) are as follows:

	Principal Debt Maturities

	Term B Loan		Revolver		Other		Total
	(amounts in thousands)
Years ending December 31:
2017	$	4,800	$	-	$	17	$	4,817
2018		4,800		-		18		4,818
2019		4,800		-		21		4,821
2020		4,800		-		23		4,823
2021		4,800		-		8		4,808
Thereafter		456,000		-		-		456,000
Total	$	480,000	$	-	$	87	$	480,087

(F) Outstanding Letters Of Credit

The Company is required to maintain standby letters of credit in connection with insurance coverage as described in Note 20.

(G) Guarantor and Non-Guarantor Financial Information

As of December 31, 2016, Entercom Communications Corp. and each direct and indirect subsidiary of Radio is a guarantor of Radio’s obligations under the Credit Facility. Separate condensed consolidating financial information is not included as Entercom Communications Corp. does not have independent assets or operations, Radio is a 100% owned finance subsidiary of Entercom Communications Corp., and all guarantees by Entercom Communications Corp. and its guarantor subsidiaries are full, unconditional (subject to the customary automatic release provisions), joint and several under its Credit Facility.

Under the Credit Facility, Radio is permitted to make distributions to Entercom Communications Corp. in amounts as defined, which are required to pay Entercom Communications Corp.’s reasonable overhead costs, including income taxes and other costs associated with conducting the operations of Radio and its subsidiaries.