1. Radio Station Debt Financing November 2013 Dave Westburg Taneum Creek Capital dave.westburg@comcast.net www.wpmedialending.com 206-910-1283 Radio Station Debt Financing11/16/131

2. Dave Westburg Background 25 years lending to radio stations. Four funds which have $20 million lent to media companies. 3 minority-owned borrowers. Own nine stations in Alabama, Nevada and New Mexico. Radio Station Debt Financing11/16/132

3. A Lender’s View of The Radio Industry Slow growth is the new normal. Don’t waste my time if you don’t have equity. I hate seller debt. 6X/4X/7 Radio Station Debt Financing11/16/133

4. Slow Growth is The New Normal YearUS Radio Revenue (millions) % ChangeUS GDP (billions) % Change 2009$14,981-18%$14,6722% 2010$16,1856%$15,2423% 2011$16,2601%$16,0413% 2012$16,4821%$15,5354% 6 mo 2013$8,4430%$16,6613% Radio Station Debt Financing11/16/134

5. Equity You need to put in cash equal to 30-50% of the purchase price. Seller debt is not equity. Loans which bear interest are not equity. Radio Station Debt Financing11/16/135

6. Sources of Equity Home equity line of credit. Savings. – Costly to access 401(k) or IRA. 10% early withdrawal penalty. Taxed as current income. Friends and family. Jobs Act (SEC Oct 23, 2013 Proposal on Crowdfunding). Accredited Investors. Equity Funds. Radio Station Debt Financing11/16/136

7. A Senior Lender’s View of Seller Debt Seller Debt uses up debt capacity. Seller debt holders have little incentive to cooperate in financial difficulties. Seller debt raises the cost of a workout. – Complexity. – Legal Fees. Use seller debt only if you can’t get senior debt financing. Radio Station Debt Financing11/16/137

8. 6X/4X/7 Valuations are 6 times cashflow (EBIDTA) Debt Capacity is 4 times cashflow (EBIDTA) Debt must be paid back within 7 years. Radio Station Debt Financing11/16/138

9. What you need to access bank debt. Equity. A transaction. A loan package. Radio Station Debt Financing11/16/139

10. A Lender’s View of Acquisitions Valuations – 6 times cashflow (EBIDTA) – 1-2 times gross revenue Transaction needs to work with no growth. Is there a good tower lease? Can you find a translator for the AM stations? Be skeptical of addbacks. Purchase assets, not stock. – Can depreciate assets but not stock. – You’re stuck with the owner’s liabilities. Radio Station Debt Financing11/16/1310

11. A guide to addbacks OK – LMA fees when the LMA is terminating. – Interest – Financing charges. – Fines and penalties. – Leases for space which won’t be used. – That portion of owner’s salary which won’t be replaced. Not OK – Corporate overhead. – Phone expenses. – Travel. – Unspecified personnel cuts. – Legal fees. Radio Station Debt Financing11/16/1311

12. Examples of Undeclared Liabilities Which You Inherit If You Buy Stock FCC fines. Environmental liabilities. Unpaid BMI, ASCAP, SESAC royalties. Lawsuits. Tax liabilities. Radio Station Debt Financing11/16/1312

13. The Loan Package (in order of importance) Sources and uses of funds. Historic financials. Personal financial statement. Business summary of the station you want to buy. Management bio. 3 business and professional references. Projections. Radio Station Debt Financing11/16/1313

14. What to do when approaching a lender. Be specific on how much money you want and for what. Approach the lender when you don’t need the money. Talk the lender’s metrics – Revenues – Cashflow (EBIDTA) Dwell on history, not on the future. Radio Station Debt Financing11/16/1314

15. EBIDTA (what the business can pay the bank) Earnings before: – interest – Depreciation – Income Taxes – Amortization Trailing twelve months. Debt Capacity is a multiple of EBIDTA Debt Service coverage is (Interest and Principal)/EBIDTA Radio Station Debt Financing11/16/1315

16. My Debt Terms Interest rate of Prime plus 6% floating. Floor on the rate at 12%. 2% loan fee. 2% legal/travel fee. Personal guarantee. First security interest in all assets of business. – UCC on inventory, equipment and receivables. – Assignment of material agreements. – Pledge of stock. Radio Station Debt Financing11/16/1316

17. My Debt Terms Continued Debt/EBIDTA of 4:1 or less. Debt Service Coverage (Interest and principal)/EBIDTA in excess of 1.1 times. Restrictions on dividends, salary, capital expenditures, other debt … 5-7 year amortization. Radio Station Debt Financing11/16/1317

18. Sources of Debt Taneum Creek Capital. SBA. Banks. Leasing Companies. Finance companies (usually want to do $10 million or more). Seller financing. Radio Station Debt Financing11/16/1318