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Let's Make A Deal
Larry Patrick Speaks to Radio Ink about the deal market in 2010

What will the radio deal market look like in 2010? Radio Ink asked experts Drew Marcus, founder and managing partner of Sugarloaf Rock Capital, and Patrick Communications Managing Partner Larry Patrick for their take on the state of the business.

Where will new lending come from in 2010?
Larry Patrick:
I do not believe that there will be many new lenders coming into the radio space in 2010. Some traditional lenders may return and the private equity groups will also provide some lending, but most banks are scared of the industry right now.

Are “traditional” radio lenders gaining back their confidence in radio?
LP:
Some are, but most are still hesitant or are working out problems in their portfolios. Until the economy recovers, I believe the credit markets will remain largely closed to many borrowers.

What have been the effects of Citadel’s chapter 11 and, on the smaller company side, Regent’s difficulties, on lender confidence?
LP:
I believe that it is cumulative. When lenders see a trend of workouts and restructurings in an industry, such as Citadel, NextMedia, Regent, Black Crow, ect., in radio (as well as a number of television groups in bankruptcy – Young, Freedom, New Vision, Pappas, ION, and others), it makes them hesitant on new lending. It also makes them tighten up some of the covenants and consider removing loan revolvers and other options for borrowers. Broadcasting is just out of favor right now. When it returns to being seen as a mature industry with strong and steady cash flows, it will regain some of its luster. It takes time for the market to digest these restructurings of the balance sheet and to see a bright future for radio.

How does a seller price a radio station or group these days – what’s the right multiple?
LP:
Multiples have certainly come down from double-digits to more in the six-times range for small deals and perhaps as high as eight-times for larger markets. There are few deals being done, so the comparables are sparse. Some deals today are being valued at either a multiple of revenue or as a price per population in the 60 dBu coverage area.

Is “stick value” an outdated concept?
LP:
Stick deals are alive and well, and the concept remains a useful measure of value. This is reflected in the price per population that many noncommercial and religious buyers pay for stations.

What does radio – without getting into the digital market – have to sell, even now, that other media don’t?
LP:
Localism is the most important aspect of radio – always has been and always will be. Radio is also often the last medium that a consumer interacts with prior to a purchase decision. That immediacy and the frequency that radio offers is a good value proposition.

For the full article, please read the February 1, 2010 issue of Radio Ink.

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Restructuring Reality
Larry Patrick Speaks to Radio Ink about restructuring

Larry Patrick, managing partner of Patrick Communications, recently spoke with Radio Ink about the nature of trusteeship and restructuring a media company.

As the number of radio companies mired in financial difficulty increases, more employees are now working at stations operating under restructuring agreements. In most cases, the controlling bank or equity firm names a trustee, usually with broadcast experience, to oversee the company, with the aim of restoring its economic health and working through debt and other critical issues.

Larry Patrick, managing partner of Patrick Communications, was recently named trustee for Border Media Business Trust, which took control of Border Media Partners in July. John Wells King, partner in the Washington office of Garvey Schubert Barer and DC counsel to Radio Ink, represents broadcasters, receivers, and trustees in matters before the FCC. Mark Hubbard, president of Du LacTrust, serves as trustee overseeing some of Nassau Broadcasting under the terms of its restructuring agreement.

I decided to ask them some of the questions on many minds today. Primarily, how does restructuring impact my job at the radio station? Perhaps this “Dialogue” will clear some of the air, dispel a few of the myths, and alleviate a little of the stress.

What is the biggest misperception station employees have about working in a restructuring environment?
Larry Patrick: Employees hear “restructuring” and think that their paychecks will start to bounce, the stations may be sold immediately, and that they are bailing out a sinking ship. Restructuring may actually relieve a company from some of its debt service. Lenders sometimes even inject some capital to clean up past-due payables or invest in some much-needed repairs or upgrades. In most cases, the lenders take a long-term view of the situation and want to build value. They do not want to scare the employees. They simply want to stabilize operations and move forward.

What legal and operational changes occur when a station or group goes into receivership or under a trustee?
LP: A bankruptcy or receivership immediately results in a license transfer and the ability of the trustee to cancel contracts for leases, talent, and vendors. From an operational perspective, the stations continue forward, generally with a lower operating cost structure. The employees need to be reassured that they are still employed and that the stations will continue to operate. Competitors often use these financial pressures to attempt to lure away talent and account executives. It takes real interpersonal skills to keep your team intact; in the end, they simply want to know what the plans are and if their jobs are safe.

What can a trustee do to bolster employee morale and encourage key personnel not to jump ship?
LP: I always start by telling them the truth about the situation. Explain what has happened and will most likely happen going forward. Be honest and don’t mislead them. Help them deal with the local press stories about the situation and with the competitors who will try to use this to their advantage. Don’t start cutting immediately. Take time to understand the company and its employees. Ask them what has been a problem in the past and try to fix it. Be positive and admit that this is a scary and tough time. Explain that so many other companies have been through bankruptcies and restructuring, such as United Airlines or the auto companies. People know that this happens and it is a part of life today. Just be straight with everyone.

How do you handle client, listener, and community concerns?
LP: Have a script or outline of what the staff should say when questioned by clients. Have one person inside the company who is authorized to speak to the press. Be honest. I often say that this is a problem at the corporate level. At the station level, however, the airstaff remains, the sales staff remains, and the local promotions remain. Nothing changes for the client. Reassure them, as some of them are also experiencing financial pressures.

What benefits can emerge from this process?
LP: It is easy to manage in good times, when a rising tide lifts all boats. The true leaders in a station show their colors during adversity. The staffs often bond together and decide to do the best that they can do to save the company, as well as to impress a new buyer that eventually will purchase the stations. I have seen some great people fight through missed paychecks, lack of equipment, and a revolving door of employees, and come together to make the best of the situation. Their courage and determination always impress me. I have been very proud of many people at stations around the country who understand the difficulties and elect to stand and fight rather than jump ship.

For the full article, please read the September 21, 2009 issue of Radio Ink.

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