New Credit Deal Puts Westwood One Back on Track

As a follow up to my commentary from last week, on January 15, Westwood One (WON) filed Form 8K, Entry into a Material Definitive Agreement, with the Securities & Exchange Commission, declaring that it had come to an agreement that will put it back in compliance with its lenders, led by J.P. Morgan Chase. This is a significant development and now that Westwood One also has a new CEO on board, it has crossed the last major impediment for the company to focus on its growth efforts for the future.

Major points in this amendment to its credit agreement are:

• The Total Debt Ratio covenant will be increased to 4.00 to 1 (from 3.50 to 1);
• the Revolving Credit Commitments will be reduced from $125 million to $75 million;
• the Mandatory Prepayments covenant will state that twenty percent (20%) of net cash proceeds from any Equity Issuance will be used to prepay the Loans outstanding under the Credit Agreement and upon payment in full of the Term Loans and the termination of the Term Loan Commitments, applied to permanently reduce the Revolving Credit Commitments;
• the $10 million general basket will be eliminated from the Guarantee Obligations covenant;
• the general basket permitting the payment of dividends and stock repurchases in an amount of up to $36 million will be eliminated from the Restricted Payments covenant; and
• the Company's ability to make: (i) $5 million in new Investments (not consisting of Company stock) in Unrestricted Subsidiaries; (ii) loans to officers and directors and (iii) purchases of capital stock of commercial radio businesses will each be eliminated from the Investments, Loans and Advances covenant.

Intraday, the stock surged on the news reaching a high of $1.94- up more than 27% on the filing. As the day progressed, it eventually settled somewhat and closed the day out at $1.64, up 8.6%. Based on its long term prospects, Westwood One is one of my two favorite plays in the radio sector along with Cumulus Media (CMLS).

Disclosure: None

Comments

[J.P. Hannan]

Thanks for the emails I got on this one. Always welcome feedback on my articles.