July 2021 by RBR
Its share value is down 41% since early March. July 15 saw the “restructuring” of its Contemporary Hit Radio (CHR) stations, resulting in the importation of two hosts across numerous stations it owns throughout the U.S.
Now, Audacy — the company formerly known as Entercom — has engaged in what’s called a “trade receivables securitization” that will give it a huge influx of cash.
How much cash? Audacy is poised to receive $75 million through a three-year pact announced prior to Friday’s Opening Bell on Wall Street.
The agreement involves Finacity Corporation and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, not to be confused with Deutsche Bank. DZ Bank, Germany’s second-largest financial institution, has some €596 billion in assets as of 2020.
It’s a three-year facility, and one that may raise eyebrows, along with basic questions such as, “What is a trade receivables securitization?”
PNC Financial Services Group describes it as “a lower cost source of revolving debt.” That’s because it involves asset-backed financing.
As PNC describes, “Companies of all sizes and credit profiles use securitization to achieve significant cost savings in comparison to other forms of debt. Due to the highly structured nature that is characteristic of these transactions, securitization lenders can provide capital at a relatively low price.”
And, accounts receivable securitization is normal among big companies whose customers have good credit ratings, one financial services executive tells RBR+TVBR. In the simplest terms, it is a cheap and reliable source of working capital financing.
In the case of Audacy, that price is the collaterization of the company’s billed and unbilled receivables for radio and podcast advertisements — a stunning move that may result in lower interest, but relies on the performance of its market-by-market sales executives to help fuel its dollar influx.
While peculiar to the financial services executive RBR+TVBR spoke with, as it involves financing on unbilled receivables, the arrangement remains fundamentally based on the creditworthiness of the Audacy customers to whom those invoices are expected to be sent to at the end of each month — and not on Audacy itself.
A review of Audacy’s Q1 2021 results shows that its accounts receivable came in at $208.77 million, down from $276.1 million in Q4 2020. But, it had more cash, with $51.53 million as of March 31 compared to $30.96 million as of Dec. 31, 2020.
The big line item: its long-term debt, both net of current portion, and its total liabilities. At the end of Q1, the long-term debt (net) was just shy of $1.71 billion, rising from roughly $1.69 billion at the close of 2020. Total liabilities were $2,654,666 as of March 31, compared to $2,644,019 as of Dec. 31, 2020.
Finacity is serving as the Transaction Administrator and provided analytic and structuring support to DZ Bank, which serves as the Agent for the transaction and funded the transaction via its ABCP conduit Autobahn Funding Company LLC.
Finacity is headquartered in Stamford, Conn., and is considered a leader in the structuring and provision of asset-backed working capital funding solutions, consumer receivables financing, supplier and payables finance, back-up servicing, and transaction reporting globally.
WHAT SECURITIZATION DOES
There are several factors PNC considers that are related to securitization. At the top of the list: “Securitization allows your company to monetize its trade receivables by legally isolating the assets from the bankruptcy estate of the company originating them.”
To be clear, Audacy is not engaging in any activities that would suggest a Chapter 11 restructuring is in the works. Rather, the structure of the Finacity/DZ Bank transaction
allows Audacy to receive capital “at a lower spread” than other forms of debt — thanks to the added security of the pledged receivables.
Nevertheless, the word “bankruptcy” is omnipresent in the PNC Bank literature defining a Trade Receivables Securitization.
“The interest cost is relatively low because the receivables’ cash flows are legally
segregated and protected from other creditors in the event of a bankruptcy,” it says.
Meanwhile, the legal separation of the receivables has no impact on the company’s
operations, PNC Bank says. The business continues to manage its accounts receivable (and customers/clients) in the same manner as it did before the securitization.
“Securitization does not require changes to your credit and collection policies or procedures, and the process is completely transparent to your customers,” PNC Bank says.
In fact, Audacy doesn’t even need to notify its clients that the receivables have been securitized.
What are the other benefits associated with the securitization of receivables? Aside from a lower interest payment, “banks are generally willing to commit much larger amounts in a securitization than to a conventional revolving credit facility, and companies can also
benefit by having a smaller bank group provide the securitization.”
That’s exactly why Audacy moved ahead on this money motorway, with President/CEO David Field‘s Wall Street savvy clearly on display. Before joining the company founded as Entercom by his father, Joseph Field,
Before joining then-Entercom as President in 1998, he was an investment banker at Goldman, Sachs & Co. in New York. Field rose to CEO in 2002.
Under his leadership, Entercom grew from 15 stations with $35 million in revenues to over 230 stations with $1.6 billion in revenues and such podcasting businesses as Cadence13 and Pineapple Street. Much of the radio growth, and debt concerns, are tied to its Reverse Morris Trust-fueled tax-free merger with CBS Radio.