RBR-TVBR, MAR. 21, 2012 – Q4 and full year 2011 financial results for Radio One were far from impressive, but high-yield bond analysts Bishop Cheen and Davis Hebert at Wells Fargo Securities have been crunching the numbers. They’ve reiterated their “outperform” recommendation for the company’s publicly traded bonds – at least for patient investors.
Those 12.5%/15% senior subordinated notes are payment-in-kind (PIK) toggle notes which currently pay 9% in additional notes and 6% in cash (15% total) but go cash pay at $12.5% beginning May 16, 2012, with the first payment due November 15, 2012. So the analysts had to look at how well the company will be able to handle the additional cash interest payments.
“The incremental cash interest could be about $10 million annually (our estimates) on top of about $57 million of annual cash interest (not including TV One’s debt service of 10% on $119 million, which is paid by that division). The math involves about $315 million of bonds going from 6% cash pay, 9% PIK to 12.5% all cash pay on May 16 (payable quarterly). Thus, we think Radio One could still generate about $13 million of free cash flow this year assuming capital expenditures run about $7 million — or the same level of capex spent in 2011. We would like to see all of it used for debt reduction, but the company still has $5.6 million left in its $15 million restricted payments basket for stock buybacks. In FY 2011, the company repurchased 4.3 million shares of its Class A and Class D shares for approximately $9.48 million,” the analysts wrote in a lengthy analysis of Radio One’s revenues, cash flow and leverage.
Cheen and Hebert decided to look at the underlying asset value of the parts of Radio One and concluded that the total asset value was $899 million, while net debt was $668.9 million, so asset coverage of the net debt worked out to 134%.
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