LONG-TERM DEBT (Block)

12 Months Ended

Dec. 31, 2017

9. LONG-TERM DEBT

(A) Senior Debt

Refinancing – Entercom Indebtedness

Prior to the closing of the CBS Radio Merger Agreement, CBS Radio entered into a commitment letter with a syndicate of lenders (the “Commitment Parties”), pursuant to which the Commitment Parties committed to provide up to $500.0 million of senior secured term loans (the “CBS Radio Financing”) as an additional tranche under a credit agreement (the “Credit Facility”) among CBS Radio, the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent.

On March 3, 2017, CBS Radio entered into an amendment to the Credit Facility, to, among other things, create a tranche of Term B-1 Loans (the “Term B-1 Tranche”) in an aggregate principal amount not to exceed $500 million. The Term B-1 Tranche, which replaced the commitment under the CBS Radio Financing is governed by the Credit Facility and will mature on November 17, 2024.

The refinancing occurred on November 17, 2017 shortly after the Merger. The proceeds of the Term B-1 Tranche were used to: (1) refinance the Company’s $540 million credit agreement (the “Former Credit Facility”) that was comprised of: (a) a term loan component (the “Former Term B Loan” with $458.0 million outstanding at the date of the refinancing; and (b) a revolving credit facility (the “Former Revolver”) with $17.5 million outstanding at the date of the refinancing; (2) redeem the Company’s $27.5 million of Preferred plus accrued interest through the date of the Merger; and (3) pay fees and expenses in connection with the refinancing.

Refinancing – CBS Radio Indebtedness

In connection with the Merger, the Company assumed CBS Radio’s indebtedness outstanding under the Credit Facility and the senior notes (described below). Immediately prior to the Merger and the refinancing described above, the Credit Facility was comprised of a revolving credit facility and a term B loan. On the closing date of the Merger and the refinancing, the term B loan was converted into the Term B-1 Tranche and both were simultaneously refinanced (“Term B-1 Loan”).

As a result of the refinancing activities described above, in the fourth quarter of 2017, the Company recorded a loss on the extinguishment of debt of $4.1 million. The loss included the write off of deferred financing expense, a loss on the early retirement of the Preferred, and certain fees paid to lenders in connection with the refinancing activities.

The Credit Facility

Immediately following the refinancing activities described above, the Credit Facility is comprised of a revolving credit facility and a Term B-1 Loan.

The $250.0 million revolving credit facility (the “Revolver”) has a maturity date of November 17, 2022 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 2.25% or the prime rate plus 1.25%. 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 $105.1 million as of December 31, 2017.

The $ 1,330.0 million Term B-1 Loan has a maturity date of November 17, 2024 and provides for interest based upon the Base Rate or LIBOR, plus a margin. The initial rate is at LIBOR plus 2.75%, or the Base Rate plus 1.75%. The Base Rate is the highest of: (a) the administrative agent’s prime rate; (b) the Federal Reserve Bank of New York’s Rate plus 0.5%; or (c) the LIBOR Rate plus 1.0%.

The Term B-1 Loan amortizes: (1) with equal quarterly installments of principal in annual amounts equal to 1.0% of the original principal amount of the Term B-1 Loan; and (2) mandatory yearly prepayments based upon a percentage of Excess Cash Flow as defined in the agreement.

The Term B-1 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 Net Secured Leverage Ratio as defined in the agreement. The Excess Cash Flow payment will be due in the first quarter of each year, beginning with 2019, and is based on the Excess Cash Flow and Consolidated Net Secured Leverage Ratio for the prior year.

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): repurchase of Class A common stock, dividends, investments and acquisitions. In addition, the Credit Facility is secured by a lien on substantially all of the assets (including real property) of CBS Radio and its subsidiaries with limited exclusions. 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, a net secured leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net Secured Leverage Ratio that cannot exceed 4.0 times at December 31, 2017. In the event that the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net Secured Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition. As of December 31, 2017, the Company’s Consolidated Net Secured Leverage Ratio was 3.2 times.

Failure to comply with the Company’s financial covenant 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 covenant. 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, 2017, the Company is in compliance with the financial covenant 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.

For accounting purposes, a portion of the refinancing activities were treated as a debt extinguishment and a portion was treated as a debt modification. Unamortized deferred financing costs associated with debt assumed by the Company in the Merger were accounted for under purchase price accounting. Refer to Note 3, Business Combinations, for additional information. As a result of the refinancing, the Company’s previously unamortized deferred financing costs were adjusted during the fourth quarter of 2017 as follows: (1) a portion of the Former Term B Loan’s unamortized deferred financing costs of $2.6 million were written off as a net loss on extinguishment of debt; (2) a portion of the Former Revolver’s unamortized deferred financing costs of $0.5 million were written off as a net loss on extinguishment of debt; (3) a portion of the Former Term B Loan’s unamortized deferred financing costs of $3.2 million were deferred (to be amortized under the effective interest rate method over the term of the Term B-1 Loan); and (4) a portion of the Former Revolver’s unamortized deferred financing costs of $0.4 million were deferred (to be amortized under the straight light method over the term of the Revolver).

In addition, the Company recorded new deferred financing costs of: (1) $15.0 million for the Term B-1 Loan that will be amortized under the effective interest rate method over the term; and (2) $0.2 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 activities which were expensed during the fourth quarter of 2017 were as follows: (1) the amount of lender fees allocable to the extinguished portion of the Term B-1 Loan of $0.8 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-1 Loan of $1.8 million.

Long-term debt was comprised of the following as of December 31, 2017:

			Long-Term Debt
			December 31,
			2017		2016
				(amounts in thousands)
	Credit Facility
		Revolver, due November 17, 2022	$	143,000	$	-
		Term B-1 Loan, due November 17, 2024		1,330,000		-
		Plus unamortized premium		2,904		-
				1,475,904		-
	Former Credit Facility
		Former Term B Loan, due November 1, 2023		-		480,000
				-		480,000
	Senior Notes
		7.250% senior unsecured notes, due October 17, 2024		400,000		-
		Plus unamortized premium		16,584		-
				416,584		-
	Other Debt
		Capital lease and other		70		87
Total debt before deferred financing costs				1,892,558		480,087
	Current amount of long-term debt			(13,319)		(4,817)
	Deferred financing costs (excludes the revolving credit)			(19,797)		(7,619)
Total long-term debt, net of current debt			$	1,859,442	$	467,651
Outstanding standby letters of credit			$	1,856	$	670

CBS 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. CBS 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, Guarantor Arrangements, for financial statements of the Parent Company.

The Former Credit Facility

On November 1, 2016, the Company and its wholly-owned subsidiary, Entercom Radio, LLC, (“Radio”) entered into a $540 million credit agreement with a syndicate of lenders that was initially comprised of: (a) a $60 million revolving credit facility that was due to mature on November 1, 2021; and (b) a $480 million term B loan that was due to mature on November 1, 2023. This Former Credit Facility was paid in full on November 17, 2017 in connection with the refinancing activities described above.

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).

(B) Senior Unsecured Debt

The Senior Notes

Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and mature on October 17, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio on October 17, 2016. The deferred financing costs and debt premium on the Senior Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the amount of any unamortized debt finance costs and debt premium costs are reflected on the balance sheet as a subtraction and an addition to the $400.0 million liability, respectively.

Interest on the Senior Notes accrues at the rate of 7.250% per annum and is payable semi-annually in arrears on April 15 and October 15 of each year. Due to the timing of the Merger, the Company only incurred interest expense on the Senior Notes from November 17, 2017 until December 31, 2017.

The Senior Notes may be redeemed on or after November 1, 2019 at a redemption price of 105.438% of their principal amount plus accrued interest. The redemption price decreases to 103.625% of their principal amount plus accrued interest on or after November 1, 2020, 101.813% of their principal amount plus accrued interest on or after November 1, 2021, and 100% of their principal amount plus accrued interest on or after November 1, 2022.

The Senior Notes are unsecured and rank: (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 do not guarantee the Senior Notes, to the extent of the assets of those subsidiaries.

All of the Company’s existing subsidiaries, other than CBS Radio, jointly and severally guaranteed the Senior Notes.

A default under the Company’s Senior Notes could cause a default under the Company’s Credit Facility. Any event of default, therefore, could have a material adverse effect on the Company’s business and financial condition.

The Company may from time to time seek to repurchase or retire its outstanding debt through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

The Senior Notes are not a registered security and there are no plans to register the Company’s Senior Notes as a security in the future. As a result, Rule 3-10 of Regulation S-X promulgated by the SEC is not applicable and no separate financial statements are required for the guarantor subsidiaries as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015.

The Former Senior Notes

In 2016, the Company issued a call notice to redeem its $220.0 million 10.5% unsecured Senior Notes due December 1, 2019 (the “Former Senior Notes”) in full with an effective date of December 1, 2016, that was funded by the proceeds of the Former Credit Facility.

The Former 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 Former 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 Former 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,
	2017		2016		2015
	(amounts in thousands)

Interest expense	$	31,266	$	33,799	$	34,764
Amortization of deferred financing costs		2,333		2,585		2,863
Amortization of original issue discount (premium) of senior notes		(962)		312		340
Interest income and other investment income		(116)		(57)		(6)
Total net interest expense	$	32,521	$	36,639	$	37,961

The weighted average interest rate under the Credit Facility (before taking into account the fees on the unused portion of the Revolver) was: (1) 4.2% as of December 31, 2017; and (2) 4.5% as of December 31, 2016.

(D) Interest Rate Transactions

As of December 31, 2017 and 2016, 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 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-1 Loan		Revolver		Senior Notes		Other		Total
	(amounts in thousands)
Years ending December 31:
2018	$	13,300	$	-	$	-	$	19	$	13,319
2019		13,300		-		-		29		13,329
2020		13,300		-		-		17		13,317
2021		13,300		-		-		5		13,305
2022		13,300		143,000		-		-		156,300
Thereafter		1,263,500		-		400,000		-		1,663,500
Total	$	1,330,000	$	143,000	$	400,000	$	70	$	1,873,070

(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, Contingencies And Commitments.

(G) Guarantor and Non-Guarantor Financial Information

As of December 31, 2017, each direct and indirect subsidiary of CBS Radio is a guarantor of CBS Radio’s obligations under the Credit Facility and the Senior Notes. Under certain covenants, the Company’s subsidiary guarantors are restricted from paying dividends or distributions in excess of amounts defined under the Senior Notes, and the subsidiary guarantors are limited in their ability to incur additional indebtedness under certain restricted covenants. Refer to Note 21, Guarantor Arrangements, for financial statements of the Parent Company.

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