During its quarterly earnings call today, Cumulus Media revealed it had agreed to a deal on Friday to sell its portfolio of transmitter sites to Vertical Bridge for $213 million.
The deal is expected to close later this. In their earnings call with investors, Cumulus CFO Frank Lopez-Balboa stated that the deal involves selling off 250 tower sites with the company then leasing back the facilities needed to broadcast. Lopez-Balboa states the sale portion of the transaction represents about a third of the value, while the sale leaseback portion represents the other two-thirds. The company will pay $13.5 in new leases in the first year, while losing $2.3 million in other rental income and eliminate $800,000 in associated expenses. The company will utilize the proceeds to pare down the company’s debt to around $700 million.
The transcript of the relevant part of the earnings call follows:
Now, to the announcement this morning, as we mentioned on previous calls, we had been exploring strategic alternatives for our Tower portfolio. On Friday, we entered into a definitive agreement to monetize substantially all of our Tower portfolio and related assets for $213 million. In summary, we’re selling 250 towers locations, broken down between a sale leaseback with the assets that we need to run our business, and outright sale of the other assets of these sites, including land and intangibles. The sale portion of the transaction represents about a third of the value, while the sale leaseback portion represents the other two-thirds.
Considering our new lease costs of $13.5 million in year one, foregoing current third-party Tower rental income of $2.3 million, and eliminating associated cash expenses of $800,000, the transaction is an effective multiple of 14.25 times. The sale leaseback transaction will be accounted for as a financing lease. And as a result, lease payments will run through interest expense and amortization of financing lease liability.
For the assets we’re selling, our approximate tax basis is $40 million, the majority of which relates to the assets that are being sold and not leaseback. We do expect that the gain on the sale for tax purposes will be largely sheltered by NOLs generated this year.
The final amount available to offset gains will be determined based on our performance for the balance of the year.
If the entire sale occurred in one closing under our credit agreement and indenture we will be required to repay approximately $95 million of that debt closing on a pro rata basis as a result of the sale leaseback, with the balance of the net proceeds of the sale required to be paydown debt as well as subject to our 12-month reinvestment rate. We expect to close at least 85% of the transaction in an initial closing in Q4 with subsequent closings to the extent necessary. Pro forma for this transaction, we anticipate this debt or debt will be in a net in the range of $700 million. In sum, this is a fantastic transaction to the company and will allow us to make further progress against our goals of reducing debt, increasing liquidity, and growing shareholder value.
