Note 3. Long-Term Debt and Other Financial Instruments

9 Months Ended

Sep. 30, 2013

Long Term Debt Financial Instruments And Derivatives [Abstract]

Long Term Debt Financial Instruments And Derivatives [Text Block]

3.     On July 31, 2013, the Company entered into a new credit agreement with a syndicate of lenders, the funding of which is contingent upon successful completion of the merger with Young, which will provide the combined company with a $60 million revolving credit facility and an $885 million term loan. The revolving credit facility has a term of five years and will bear interest at LIBOR plus a margin of 2.75%. The $885 million term loan has a term of seven years and will bear interest at LIBOR (with a LIBOR floor of 1%) plus a margin of 3.25%. The Company paid approximately $16 million of transaction-related fees in the third quarter. The Company also incurred $0.5 million of fees on the unfunded term loan commitment during the third quarter. The fees will continue to accrue at an annual rate of 3.25% of the unfunded term loan commitment until the Company fully draws down the term loan. When drawn following the merger, the new credit agreement will be guaranteed by the combined company and its subsidiaries, and secured by liens on substantially all of the assets of the combined company.

Shield Media LLC (and its subsidiary WXXA-TV LLC) and Shield Media Lansing (and its subsidiary WLAJ-TV LLC) (collectively, “Shield Media”), companies controlling subsidiaries with which Young has shared services arrangements for two stations, entered into a new credit agreement with a syndicate of lenders, dated July 31, 2013, contingent on successful completion of the Young merger, which will refinance its outstanding aggregate $32 million term loans under one credit agreement. The existing Shield Media term loans are guaranteed on a secured basis by Young which will continue to provide its guarantee, secured by the same collateral, for the combined refinanced facility. The new Shield Media term loan has a term of five years and will bear interest at LIBOR plus a margin of 3.25%. Upon completion of the merger and repayment of the 11.75% senior secured notes, the new Shield Media term loan will be guaranteed by the combined company and its subsidiaries. These guarantees will be secured by liens on substantially all of the assets of the combined company, on a pari passu basis with the new Media General credit agreement.

The new Media General credit agreement contains a leverage ratio covenant, which involves debt levels and a rolling eight-quarter calculation of EBITDA, as defined in the agreement. Additionally, the agreement has restrictions on certain transactions including the incurrence of additional debt, capital leases, investments, additional acquisitions, asset sales and restricted payments (including dividends and share repurchases) as defined in the agreement. The new Shield Media credit agreement contains a fixed charge coverage ratio, a financial covenant that is meant to measure whether the borrowers can satisfy their fixed charges (interest, debt payments, capital expenditures and taxes) when due by measuring fixed charges to EBITDA, calculated on a rolling eight-quarter basis, as defined in the agreement.   The agreement also has restrictions on transactions similar in nature to those in the new Media General credit agreement, but scaled to Shield Media’s smaller size.  Additionally, the agreement has more specific covenants regarding the operation of the Shield Media business and requires that each Shield Media holding company that controls a Shield Media station limit its activities to performance of its obligations under the Shield Media credit documents, and activities incidental thereto, including owning a Shield Media station and performance of its obligations under and activities related to the shared services agreement. Both the Media General and Shield Media credit agreements contain cross-default provisions.

The Company anticipates borrowing under the new Media General credit agreement and the new Shield Media credit agreement in order to repay the existing debt of both Media General and Young shortly after the merger closes.

Long-term debt at September 30, 2013, and December 31, 2012, was as follows:

(In thousands)	Sept. 30, 2013			Dec. 31, 2012
Term loan:
Face value	$	301,537		$	301,537
Remaining original issue discount		(28,808	)		(32,058	)
Remaining warrant discount		(10,795	)		(12,013	)
Carrying value		261,934			257,466
Revolving credit facility ($15 million remaining availability at 9/30/2013)		30,000			-
11.75% senior secured notes:
Face value		299,800			299,800
Remaining original issue discount		(3,346	)		(4,091	)
Carrying value		296,454			295,709
Capital lease liability		5			12
Total carrying value	$	588,393		$	553,187

As of September 30, 2013, the Company had in place a term loan with a face value of $302 million and a revolving credit facility with a $30 million outstanding balance and remaining availability of $15 million. Also outstanding were 11.75% senior secured notes with a face value of $300 million that were issued at a price equal to 97.69% of face value. The Company’s term loan with Berkshire Hathaway as lender, matures in May 2020 and bears an interest rate of 10.5% but the rate could decrease to 9% based on the Company’s leverage ratio, as defined in the agreement. The Company was in compliance with the provisions of both agreements at September 30, 2013.

In May 2012, the Company consummated a financing arrangement with BH Finance LLC, an affiliate of Berkshire Hathaway, that provided the Company with a $400 million term loan and a $45 million revolving credit facility. The Company subsequently repaid approximately $98 million of principal on the term loan. The term loan was issued at a discount of 11.5% and was secured pari passu with the Company’s existing 11.75% senior secured notes due 2017. While the financing arrangement does not contain financial covenants, there are restrictions, in whole or in part, on certain activities including the incurrence of additional debt, repurchase of shares and the payment of dividends. The term loan may be repaid voluntarily prior to maturity, in whole or in part, at a price equal to 100% of the principal amount repaid plus accrued and unpaid interest, plus a premium, which starts at 14.5% and steps down over time beginning in May 2016, as set forth in the agreement. Other factors, such as the sale of assets, may result in a mandatory prepayment or an offer to prepay a portion of the term loan without premium or penalty. The Company considers the prepayment feature to be an embedded derivative which it bifurcates from the term loan when the fair value is determinable. The term loan and revolving credit facility mature in May 2020 and are guaranteed by the Company’s subsidiaries. The revolving credit facility bears interest at a rate of 10% and is subject to a 2% fee on the unused portion of the commitment. The Company also issued common stock warrants to purchase 4.6 million shares of common stock to Berkshire Hathaway in conjunction with the financing. The warrants were exercised subsequently.

On or before February 15, 2014, the 11.75% senior secured notes can be redeemed at a price equal to 100% of the outstanding principal, plus the present value of the semi-annual interest payment due February 15, 2014, plus a call premium of 5.875% of the outstanding principal.

The early repayment of debt in the third quarter of 2012 resulted in debt modification and extinguishment costs of $17.3 million due to the accelerated recognition of a pro rata portion of discounts and deferred issuance costs. In the second quarter of 2012, in conjunction with the secured financing with Berkshire Hathaway and the repayment of the previous credit facility the Company recorded debt modification and extinguishment costs of $7.7 million, primarily due to the write-off of unamortized fees related to the former credit agreement.  In addition, the Company capitalized $11.5 million of advisory and legal fees related to the Berkshire Hathaway financing; these fees are amortized as interest expense over the term of the financing arrangement.  In March of 2012, the Company amended its previous bank credit agreement which resulted in $10.4 million of debt modification and extinguishment costs including certain advisory, arrangement and legal fees related to that refinancing. 

The previous bank credit facility had an interest rate of LIBOR (with a 1.5% floor) plus a margin of 7% and commitment fees of 2.5%. In addition to this cash interest, the Company accrued payment-in-kind (PIK) interest of 1.5%. This PIK interest, which totaled approximately $1 million, was treated as additional bank term loan principal and was paid in cash upon repayment of the entire facility.

The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at September 30, 2013, and December 31, 2012:

	Sept. 30, 2013				December 31, 2012
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Investments
Trading	$	236	$	236	$	198	$	198
Liabilities:
Long-term debt:
Revolving credit facility ($15 million remaining availability at 9/30/13)		30,000		30,000		-		-
Term loan		261,934		345,260		257,466		343,746
11.75% senior secured notes		296,454		327,906		295,709		346,269

Trading securities held by the Supplemental 401(k) Plan are carried at fair value and are determined by reference to quoted market prices. The fair value of the revolving credit facility is equal to its carrying value as the Company has the ability to repay the outstanding principal at par value at any time. The fair value of the term loan was calculated assuming the outstanding principal will be repaid at the current call premium of 14.5%. The fair value of the 11.75% senior secured notes was valued by reference to the most recent trade prior to the end of the applicable period. Under the fair value hierarchy, the Company’s trading securities fall under Level 1 (quoted prices in active markets), its senior secured notes fall under Level 2 (other observable inputs) and its revolving credit facility and term loan fall under Level 3 (unobservable inputs).