(Adds call protection in the 10th paragraph.)
July 14 (Bloomberg) -- Cumulus Media Inc. increased the interest rate and changed the structure on $2.04 billion in loans it’s seeking to back the acquisition of Citadel Broadcasting Corp. after lenders pushed back against the original terms.
The U.S. broadcaster cut the size of the first-lien term loan to $1.25 billion and is now offering a $790 million second- lien portion, said three people with knowledge of the deal, who declined to be identified because the transaction is private
JPMorgan Chase & Co., which is arranging the transaction, had to rework the financing after loan prices fell in June by the most since May 2010 amid sovereign-debt concerns that could threaten the global economic recovery and a growing pipeline of transactions. Lenders are also demanding higher yields from transactions such as Cumulus that don’t contain maintenance covenants.
“The market, with the reemergence of the Greece crisis and worsening economic data, has shifted more neutral,” said Marc Gross, who helps oversee $3 billion in fixed-income funds as a money manager at RS Investments in New York. “You needed a little bit of a correction to help restore sanity to the market and that’s what’s happening. Sanity is being restored to the market.”
J.P. Hannan, chief financial officer at Atlanta-based Cumulus, didn’t immediately return a call for comment.
Cumulus is offering lenders 4.25 percentage points to 4.5 percentage points more than the London interbank offered rate on the seven-year, first lien-portion, with a 1.25 percent minimum on the lending benchmark, the people said. The loan is expected to price at 99 cents on the dollar, increasing the yield for lenders.
The 7.5-year, second-lien loan will pay 6 percentage points over Libor, with a 1.5 percent Libor floor, the people said. The loan will price at 98.5 cents on the dollar. Commitments from lenders are due at 12 p.m. New York time on July 19.
The deal was initially offered as a $2.04 billion term loan that would pay 3.75 percentage points to 4 percentage points more than Libor, with a 1.25 percent floor on the lending benchmark, according to two other people familiar with the transaction.
Cumulus offered to buy Citadel in a deal worth $2.4 billion to expand its coverage and cut costs, the company said in a March 10 statement. Cumulus’s leverage, or debt to earnings before interest, taxes, depreciation and amortization, was expected to be 5.7 times after the initial $2.04 billion deal had been completed, according to an April 25 Moody’s Investors Service report.
The first-lien loan will give lenders a one-year soft-call protection of 101 cents, meaning Cumulus would have to pay 1 cent more than face value to refinance the debt during the first year, the people said. The company will not be able to refinance the second-lien portion during the first year, then can do so at 103 cents on the dollar in the second year, 102 cents in the third year and 101 cents in the fourth year.
The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has dropped 0.81 cents on the dollar to 94.72 cents on the dollar since March 10. The index declined 0.94 cent in June.
--Editors: Faris Khan, Mitchell Martin
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