Credit Agreement Amendment

6 Months Ended

Aug. 31, 2011

Credit Agreement Amendment [Abstract]

Note 9. Credit Agreement Amendment

On March 29, 2011, ECC and its principal operating subsidiary, Emmis Operating Company (“EOC” and the “Borrower”) entered into the Third Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Third Amendment”), by and among the Borrower, ECC, the lending institutions party to the Credit Agreement and Bank of America, N.A., as administrative agent for itself and the other lenders party to the Credit Agreement.

Among other things, the Third Amendment provides that (i) the leverage ratio and fixed charge covenants will not apply to any amounts outstanding under the Credit Agreement until November 30, 2012, at which time they will be set at 5.0x and 1.15x for the life of the Credit Agreement and from November 30, 2011 through August 31, 2012 there will be a minimum Consolidated EBITDA (as defined in the Credit Agreement) test of $25.0 million per rolling four quarter test period, (ii) the requirement that annual audits be certified without qualification will be waived for the fiscal years ending February 2011 and 2012, (iii) the ability of Emmis to engage in certain activities or transactions, including the payment of dividends, the incurrence of indebtedness and the ability to invest certain proceeds including from asset sales will be further restricted or prohibited and (iv) the terms of the existing Tranche B Term Loans held or purchased on or prior to the date of the Third Amendment by funds or accounts managed by Canyon Capital Advisors LLC (“Canyon”), are amended into an amended tranche of term loans with an extended maturity date of November 1, 2014. The total amount of Tranche B Term Loans outstanding as of March 29, 2011 was $329.0 million, and the amount of such term loans that Canyon amended into extended term loans was approximately $182.9 million (the “Extended Term Loans”). The pricing on the Extended Term Loans is based on Emmis’ election on the following pricing grid:


Cash Portion		Paid-in-Kind Portion
7.50	%		7.00	%
7.75	%		6.50	%
8.00	%		6.00	%
8.25	%		5.50	%
8.50	%		5.00	%
8.75	%		4.50	%
9.00	%		4.00	%
9.25	%		3.50	%
9.50	%		3.00	%
9.75	%¹		2.50	%¹

Prior to the entry into the Third Amendment, Emmis entered into a backstop letter agreement, dated March 27, 2011, with Canyon (the “Backstop Letter Agreement”), pursuant to which Canyon agreed to consent to the Third Amendment and to purchase loans necessary to provide the required Lenders’ consent to the Third Amendment. In consideration of Canyon’s entering into the Backstop Letter Agreement, Canyon will receive an exit fee of 6% (or 3% during the first six months after the Third Amendment effective date) on the repayment of Tranche B Term Loans and revolving credit commitments held or purchased by funds or accounts managed by Canyon as of March 29, 2011. The Company is accreting the estimated exit fee due to Canyon over the estimated life of the Extended Term Loans. For the three-month and six-month periods ended August 31, 2011, accretion of the exit fee totaled $0.7 million and $1.3 million, respectively, and is included in the accompanying condensed consolidated statements of operations as interest expense. The exit fee liability is included in the condensed consolidated balance sheets in the other noncurrent liabilities.

The Third Amendment contains other terms and conditions customary for financing arrangements of this nature.

Subsequent to the execution of the Third Amendment on March 29, 2011, the maturity dates of the original term loan and revolver remain unchanged, but the term loans held by Canyon have been extended to November 1, 2014. The contractual future amortization schedule for the Credit Agreement subsequent to the execution of the Third Amendment, based upon amounts outstanding at August 31, 2011 is as follows:


			Amortization of		Amortization of
Year Ended	Revolver		Term Loans		Term Loans		Total
February 28 (29),	Amortization		Held by Canyon		Held by Others		Amortization
2012		—		1,332		1,065		2,397
2013		13,000		1,761		1,406		16,167
2014		—		1,742		139,787		141,529
2015		—		173,182		—		173,182

Total	$	13,000	$	178,017	$	142,258	$	333,275

The Company recognized a $1.5 million loss on debt extinguishment related to the write-off of existing deferred debt issuance costs related to the Extended Term Loans. The Company incurred approximately $3.4 million of professional fees associated with the Third Amendment. The Company capitalized approximately $0.4 million of these costs as debt issuance costs, which are being amortized over the life of the Extended Term Loans. The remaining $3.0 million of these costs were expensed as a component of corporate expenses in the six-month period ended August 31, 2011.


1		If the Company elects 9.75% Cash Portion for any payment, it may also elect to pay some or the entire Paid-in-Kind portion in cash for such period.