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UPDATE: Large debt load will continue to weigh on Emmis

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Emmis Communications Corp.’s large amount of debt will continue to weigh on the company following CEO Jeff Smulyan’s failed attempt to take the company private.

Company executives said Thursday morning that Smulyan had abandoned his efforts to strike a deal with a group of preferred shareholders that would be acceptable to his financial backer in the deal, New York-based Alden Global Capital.

Emmis announced in May the $90 million buyout bid by JS Acquisition LLC, a private company formed by Smulyan to complete the purchase. A group of preferred shareholders blocked the deal. Smulyan said Aug. 30 that Alden had backed out of an “agreement in principle” to sweeten the terms for the preferred shareholders.

Now, Emmis, which has been awash in red ink, must contend with more than $340 million in debt. Including noncash charges, operating losses over the last two fiscal years totaled more than $500 million. On a positive note, only $4 million of the company's debt comes due within a year.

Emmis, however, will need to renew its long-term debt, which could be risky in the current lending environment, said Greg Hahn, president of Winthrop Capital Management Group, a local institutional investment adviser.

“If the bank doesn’t want to renew this facility, that’s going to be a challenge,” he said. “But I think Smulyan’s a great operator, and he’s got a great team.”

Emmis is far from generating enough cash to pay off the debt. In its last quarterly filing in July, the company lost $3.9 million on $60.3 million in revenue, compared to a profit of $11.9 million in its first fiscal quarter last year.

“At some point it needs to generate enough income to pay interest and to pay down that debt,” Hahn said. “But it’s not growing its capital base; it’s not throwing off a lot of cash.”

Emmis, which owns 23 radio stations in the United States and publishes regional magazines in seven cities, including Indianapolis Monthly, completed the sale of its television division in 2008.

The company’s current debt load is likely to keep Emmis from growing in the future, said Mark Foster, chief investment officer of Kirr Marbach & Co. in Columbus.

“They’ve got to sort of hunker down, generate cash and work down that debt as best they can,” he said.

Meanwhile, Emmis’ stock price is taking a beating on the news that Smulyan dropped his bid to take Emmis private.

In late-morning trading, shares were fetching $1.20 each, down 26 percent from their opening price.

Smulyan and Alden agreed in April to take Emmis private. But in July, nine dissident investors emerged to block the deal. They collectively hold 38 percent of the preferred shares—more than enough to prevent Smulyan from securing the necessary two-thirds vote required to approve his plan.

The dissident holders of preferred stock balked at Smulyan’s initial offer to convert their shares into bonds worth only 60 percent of the value of the shares. But the bonds would pay a hefty12 percent interest rate, nearly double the rate on existing preferred stock.

Smulyan’s proposal also required approval from the holders of a majority of Emmis shares, a threshold he already had the votes to meet.

Emmis executives are disappointed that Alden walked away from an agreement to sweeten the terms.

“We’re just bitterly disappointed that this one didn’t get to the finish line,” said Patrick M. Walsh, Emmis’ chief operating officer.
 

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  • Pulling for Emmis
    The Emmis stations have been such an anchor in the community and have been major contributors in so many ways that it would be a shame to see them do anything but remain part of the central Indiana landscape. Love the WIBC team!!! We need local radio!

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  1. Great article and post scripts by Mike L (Great addition to IBJ BTW). Bobby's stubborn as a mule, and doubt if he ever comes back to IU. But the love he would receive would be enormous. Hope he shows some time, but not counting on it.

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  4. Jim, your "misleading" numbers comment is spot on. This is the spin these posers are putting on it. News flash, fans: these guys lie. They are not publicly traded so no one holds them accountable for anything they say. The TV numbers are so miniscule to begin with any "increase" produces double digit "growth" numbers. It's ridiculous to think that anything these guys have done has awakened the marketplace. What have they done? Consolidate the season so they run more races on consecutive weekends? And this creates "momentum." Is that the same momentum you enjoy when you don't race between August and March? Keep in mind that you are running teams who barely make ends meet ragged over the summer to accomplish this brilliant strategy of avoiding the NFL while you run your season finale at midnight on the East Coast. But I should not obfuscate my own point: any "ratings increase" is exactly what Jim points to - the increased availability of NBC Sports in households. Look fans, I love the sport to but these posers are running it off a cliff. Miles wants to declare victory and then run for Mayor. I could go on and on but bottom line for God's sake don't believe a word they say. Note to Anthony - try doing just a little research instead of reporting what these pretenders say and then offering an "opinion" no more informed than the average fan.

  5. If he's finally planning to do the right thing and resign, why not do it before the election? Waiting until after means what - s special election at tax payer expense? Appointment (by whom?) thus robbing the voters of their chance to choose? Does he accrue some additional financial advantage to waiting, like extra pension payments? What's in it for him? That's the question that needs to be asked.

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