Credit Crunch

Matt Harris here. I saw this article and that it goes perfectly with all the discussions we have in class about the worries the fall of the stock market will have on us. In the article, Jeffery Yorke discusses how broadcast radio has been dealing with this so called recession. It really shows that the everyone is really trying to save all their pennies while they can, while planning on the action to take once the stock market rebounds.

Credit Crunch

By Jeffrey Yorke In case you've just returned from a 10-month vacation on the dark side of the moon, the news in radioland is that the gold rush that began with the Telecommunications Act of 1996 has come to an ugly, screeching halt. It's over, baby! According to numbers crunched by BIA Financial Networks, 568 radio stations were sold or under contract to be sold between Jan. 1 and Sept. 30—compared with 845 stations sold or under contract in the same period of 2007. And as the year rolls closer to an end, the deal slowdown shows no signs of abating: September transactions totaled 36 stations, compared with 82 during the same month last year. Dollar-wise, the drop-off is even more abrupt. At the end of three quarters, $668 million in deals had been signed, compared with $1.1 billion during the same time last year. And again, the erosion of value in a monthly snapshot was stunning: Only $36 million transacted in September versus $82 million in September 2007. Sudden declines in the sales and values of radio properties have occurred before, but not at this level. For instance, by the end of three quarters in 1998, some 1,632 stations had been traded and the deal dollars were $7.8 billion. But the previous year was the gangbuster, with 1,973 stations sold by the end of September and $12.2 billion in transactions. With the steep decline in deals, the radio industry was nervous. By the time the NAB Radio Show opened its doors in October 1998 in Seattle, the 7,000 attendees were talking about the "recession of 1999." All the excitement of Seattle was topped off a few days later when Jacor Communications' deep-pocketed landlord-turned-radio investor Sam Zell announced that he was selling Jacor to Lowry Mays' Clear Channel in a $4.4 billion stock-for-stock sale. Multiples Greatly Reduced In those days, selling a station at 17 and 18 times its cashflow was the norm, but today station owners looking to get off the slowing train are dreaming of deals that may bring them five, maybe even six times cashflow. "We're not going to see the big deals for a while," BIA Financial Networks VP Mark Fratrik says. "I imagine that the small deals that are getting funded are debt from local and regional banks, whereas the $50 million, $60 million deals were backed by bigger banks and those that have broadcasting specialists." And those deals, he adds, have pretty much evaporated. "Things are going to stay slowed down for a while," Fratrik adds, based on what his company is seeing in the marketplace. "There has to be more credit made available. And there needs to be a more promising story for radio. Until then, I think we'll see some stations that will be forced to sell at much lower multiples." In September, more than 200 attendees at the NAB Radio Show/R&R Convention in Austin packed a hall to hear from financial experts about their chances for obtaining loans both big and small. But gloom hung thick in the air. "Every year I do these panels, I hope that there is more good news and that there is light at the end of the tunnel," Garret Komjathy, managing director for loan originations at GE Commercial Finance, said at the annual broadcast financing session, "Financing Parameters," sponsored by law firm Dickstein Shapiro. Komjathy was almost apologetic, like a doctor breaking bad news to a patient's family, as he outlined the hurdles for radio that lie ahead. He expected radio ownership to hit a rough patch ahead—in the next six to nine months—and anticipated that more stations will "come on the market as overleveraged companies sell their properties."