Allen Media revised the documents for its proposed bond offering today, but the tweaks fell short of fully putting to rest some investor concerns over the potential for layering and unrestricted subsidiary investments, according to four sources following the deal.

Specifically, some prospective investors in the USD 300m unsecured notes offering are wary the media company may seek to raise priming secured debt, the sources continued. Moreover, the new structure allows ample leeway for sponsor dividends down the line. And while the company tightened the general unrestricted subsidiary and restricted payments baskets, the wave of changes don’t address a defined terms loophole that allows the company to invest through unrestricted subsidiaries without restriction, the sources added.

Of note, company owner Byron Allen has entered into several loan agreements with the company’s unrestricted subsidiaries to fund operating expenses, according to company documents.

Proceeds of the new bond, along with a concurrently offered USD 530m TLB due 2027, will be used to finance the acquisition of 11 broadcast TV stations from USA Television Holdings and USA Television MidAmerica Holdings and refinance existing debt.

Led by RBC, the notes are talked in 10.5% area, at the wide end of initial whispers in the low to mid-10% area. Books close at the end of the day today, with pricing expected tomorrow. Commitments for the TLB are also due today.

The changes today amounted to tightening the thresholds for restricted payments, investments, debt incurrence, liens, and mandatory repayments, among others. Specifically, the unrestricted subsidiaries investment basket was tightened to the greater of USD 25m and 20% EBITDA from USD 50m and 25% EBITDA, the sources noted. The restricted payment basket also came in significantly to USD 30m from the initial USD 75m figure.

As for the permitted liens definition, some investors took a view today that the changes still fell on the vague side as the company inserted language to “clarify separate permission for liens securing any ratio debt” as opposed to the initial documentation to “permit liens on any debt incurred under the Ratio debt basket.”

“These changes don’t clarify anything” one of the sources said. “All they had to do is change the secured debt incurrence to unsecured and/or close the loophole, but they haven’t done either.”

Xtract Research on 3 February noted the offering had “exceptionally weak covenants due to the off-market liens covenant that allows for SECURED debt subject to a 2x FCCR or a 4.75x Total Net Leverage Ratio and a loophole that allows for unlimited investments in Unrestricted Subsidiaries.”

Xtract issued an 8.57 score out of 10 for the loan facility, with 0 representing the weakest possible lender protections and 10 representing the strongest.

New company, new numbers

Allen Media is projecting USD 184m of pro forma restricted group adjusted EBITDA, including USD 84m of adjustments or 46% of the pro forma figure. Based on the company’s estimates, leverage through the notes totals 4.85x with USD 893m of total debt.

Some sources gave the company full credit for the USD 84m of adjustments and expect growth in 2020 due to political advertising, bringing EBITDA to roughly USD 190m. Free cash flow totals USD 77m (8.6% of total debt) through USD 75m of interest expense, USD 13m of capex and USD 25m of other costs.

Another source factored in only USD 40m of adjustments, cutting the company’s add-backs from USD 55m of losses from the unrestricted subsidiaries, bringing EBITDA to USD 140m. Leverage, in turn, jumps up to 6.4x, while free cash flow falls to USD 27m (3% of total debt).

Other sources found the numbers harder to believe and were unsure where to cap the company’s add-backs. Sources also pointed out that the company’s recent acquisitions leave it unclear how much of the company’s earnings are organic and how much are from acquisitions.

In March 2018, the company acquired The Weather Channel from Blackstone, Bain Capital and Comcast. In July 2019, the company acquired TV broadcaster Bayou City Broadcasting.

Messages left for RBC and Allen Media were not returned.

2020 Debtwire