Financing Remains Tough to Come by for Broadcast Deals
Financing for broadcast deals remains scarce as institutional lenders and big hedge funds have largely abandoned funding transactions involving radio and TV assets, media bankers and brokers told us. Smaller lenders are also leaving the sector as investors are looking for safer bets, they said. Some traditional lenders to broadcasters have scaled back their outlays to the sector and others, such as Wells Fargo Foothill’s broadcast division, have closed shop completely. More regulations on broadcasters, such as the performance royalty for terrestrial radio stations, could further drive money away from broadcasting, said David Honig, executive director of the Minority Media and Telecommunications Council.
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“The lenders are basically shying away from advertiser- driven businesses of any kind because of the uncertainty and continuing decline of ad revenues,” said Chairman Rick Michaels of Communications Equity Associates. It has only one banker concentrating on domestic broadcast deals, he said. “Specialty types of broadcasting are of interest to us. But if someone came to us and said ‘How about financing 15 music stations in the Midwest?’ that’s probably not something we would undertake.”
Wells Fargo Foothill stopped lending to broadcasters for a variety of reasons, a spokesman said. “Wells Fargo Foothill’s Specialty Finance Division -- of which our Media Finance team is a part -- realigned itself to focus principally on its existing portfolio and customer relationships,” he said. “This realignment was due to the downturn in the economy, and changes in both the media space as well as the lending markets, in general.”
Though traditional sources of financing are slim, some other investors are showing interest in broadcasting, said broker Glenn Serafin. “Institutional capital is not available,” he said. “What I'm seeing is the beginning of a huge surge of interest on the part of private investment companies.” He pointed to Endeavour Capital backing former Citadel chief Larry Wilson’s purchase of two Portland, Ore., FM stations from Microsoft co-founder Paul Allen. “Radio as a medium is really not out of favor. It’s just that the leverage in the radio business was just too high,” Serafin said. “A number of high net worth individuals who have always been attracted to radio and are now looking for an entry point into what essentially is a very good business.”
The prospect that radio stations may have to pay royalties to song performers in addition to composers affects the way investors look at the sector, said Larry Darby, an industry consultant. For instance, when radio stocks nosedived the day the House Judiciary Committee approved a bill that would grant performers such a royalty, the two events were probably related, he said. “This has to be looked at in the context of the overall market. People are very nervous now.”