Debt

As described in Note 1 — Basis of Presentation above, as part of the Merger that closed on October 21, 2011, Verge's debt and the debt of Westwood were repaid and on the Merger Date, the Company and its subsidiaries, as borrower and subsidiary guarantors, respectively, entered into New Credit Facilities and PIK Notes that are described below .

Prior to the Merger and beginning in November 2007 and through December 31, 2010, Verge entered into a series of separate note purchase agreements to finance its acquisitions, raising additional capital through the issuance of senior notes (collectively, the "senior notes"), notes payable and lines of credit that were all repaid on the Merger Date.

New Credit Facilities

The First Lien Credit Agreement provides for (1) a term loan in an aggregate principal amount of $155,000 (the “First Lien Term Loan Facility”), (2) a $25,000 revolving credit facility, $5,000 of which is available for letters of credit (the “First Lien Revolving Credit Facility” and, together with the First Lien Term Loan Facility, the “First Lien Credit Facilities”) and (3) an uncommitted incremental facility in the amount of up to $25,000, of which $10,000 may be used to increase the amount of the New First Lien Revolving Credit Facility. The Second Lien Credit Agreement provides for a term loan in an aggregate principal amount of $85,000 (the “Second Lien Term Loan Facility” and, together with the First Lien Term Loan Facility, the “Term Loan Facilities”; the Term Loan Facilities collectively with the New First Lien Revolving Credit Facility, the “New Credit Facilities”). Concurrently with the consummation of the Merger, the full amount of the Term Loan Facilities was drawn, $9,600 in the revolving credit facility were drawn, and approximately $2,020 of letters of credit were either rolled into the New First Lien Credit Facilities or issued in order to backstop existing letters of credit under Westwood's or Excelsior Radio Networks, LLC ("Excelsior") prior credit agreements. Westwood's and Excelsior's prior credit agreements were repaid as of the consummation of the Merger. We repaid $5,000 of the revolving credit facility in the fourth quarter of 2011.

Each of the First Lien Revolving Credit Facility and First Lien Term Loan Facility has a five-year maturity. The Second Lien Term Loan Facility has a five-year nine-month maturity. The principal amount of the First Lien Term Loan Facility amortizes in quarterly installments equal to 2.5% (per annum) of the original principal amount of the New First Lien Term Loan Facility payable beginning March 31, 2012 and increases by an additional 2.5% per year for the first four and three-quarter years, with the balance payable at maturity. The entire amount of the Second Lien Term Loan Facility is payable at maturity. The difference between the December 31, 2011 carrying values of the First Lien Term Loan Facility and Second Lien Term Loan Facility of $228,742 and outstanding principal amount of $240,000 reflects the unamortized portion of the original issue discount of $11,258 recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. For the year ended December 31, 2011 the amortization of the original issue discount is $492 and is included in interest expense.

PIK Notes

In connection with the Merger, the Company also issued $30,000 in aggregate principal amount of PIK Senior Subordinated Unsecured PIK Notes ("PIK Notes”) to Gores, certain entities affiliated with Oaktree and certain entities affiliated with Black Canyon. The PIK Notes are unsecured and accrue interest at the rate of 15% per annum, which compounds quarterly for the first five years and will compound annually thereafter, mature on the six-year three-month anniversary of the issue date and are subordinated in right of payment to the New Credit Facilities.

Senior Notes

Prior to the Merger, Verge had senior notes held by its major stockholders, Oaktree and Black Canyon, certain members of management and others. There were two tranches of notes; the first due November 1, 2013 with an interest rate of 14.5% and the other due October 31, 2013 with an interest rate of 15.5%. In each case, interest compounded quarterly and was PIK until the principal and accrued interest became due at maturity. The senior notes are shown on the consolidated balance sheet as long-term debt payable to related party and as part of long-term debt.

In May 2010, Verge borrowed $15,000 under the senior notes to finance an acquisition that was then spun-off to Triton Digital.

At December 31, 2010, the outstanding balance of the senior notes was $35,656 with interest at 14.5% and $60,051 with interest of 15.5%. PIK interest expense for the years ended December 31, 2011 and 2010 was $12,180 and $12,337, respectively.

Note Payable

As of December 31, 2010, the outstanding balance under the Verge term loan was $94,734. The term loan was subject to quarterly principal payments with a balloon payment at maturity in June 2013 and the interest rate was reset quarterly. The loan was subject to certain financial covenants, including maximum leverage ratios and minimum fixed charges. Verge was also subject to contingent principal payments based on excess cash flows (calculated annually), as defined in the note agreement. Borrowings were collateralized by substantially all the assets of Excelsior and were cross-collateralized with the line of credit. Prior to the Merger, Verge paid down $8,355 on the term loan during 2011.

At December 31, 2010, the interest rate was 5.75% with interest payable quarterly at a rate of 4.75% above a LIBOR floor of 1%. If the three-month Eurodollar base rate was in excess of 4% for 30 consecutive days, Verge was required to maintain interest rate protection agreements covering a notional amount of not less than 50% of all outstanding indebtedness at that time. The weighted-average interest rate on the term loan for the years ended December 31, 2011 and 2010 were 5.59% and 5.77%, respectively.

Line of Credit

Excelsior, one of Verge's subsidiaries, had a $15,000 line of credit with a financial institution with an interest rate at the lower of 4.75% above LIBOR or 3.75% above the prime rate at December 31, 2010. During the year ended December 31, 2010, the interest rate varied from 4.50% to 4.75% above the LIBOR, or 3.50% to 3.75% above the prime rate, depending on Excelsior's leverage ratio at the time the loan was drawn. During the period from January 1 to October 21, 2011, the interest rate varied from 4.25% to 4.75% above the LIBOR or 3.5% to 3.75% above the prime rate depending on Excelsior's leverage ratio at the time the loan was drawn. The line was collateralized by all the assets of Excelsior and cross-collateralized with the term loan. A portion of the credit line, $763 at December 31, 2010, was set aside as a letter of credit to collateralize Excelsior's lease for the New York office space that now serves as the Company's headquarters. As of December 31, 2010, $14,237 under the line of credit was available to Excelsior. The line of credit was subject to certain financial covenants and certain fees on the unused balance.

In connection with the Merger, the Excelsior line of credit and letter of credit were closed on October 21, 2011 prior to the stated expiration date of June 20, 2013.

The long-term-debt consists of the following:



	December 31, 2011			December 31, 2010
First Lien Term Loan Facility ⁽¹⁾	$	155,000		$	—
Less: original issue discount	(8,793		)	—
Second Lien Term Loan Facility ⁽²⁾	85,000			—
Less: original issue discount	(2,465		)	—
PIK notes	30,875			—
Revolving credit facility ⁽³⁾	4,600			—
Verge senior notes	—			95,707
Verge note payable	—			94,734
Total long-term debt	$	264,217		$	190,441
Less current portion	3,875			11,139
Long-term debt, non-current portion	$	260,342		$	179,302


(1)	The effective interest rate on the First Lien Term Loan Facility as of December 31, 2011 is 8%.


(2)	The effective interest rate on the Second Lien Term Loan Facility as of December 31, 2011 is 13%.


(3)	The effective interest rate on the revolving credit facility as of December 31, 2011 is 8.75%.

The changes in long-term debt (including current portion) for the year ended December 31, 2011 are as follows:



	Verge Senior Notes			Verge Notes Payable			Westwood Debt			First Lien Term Loan Facility			Second Lien Term Loan Facility			PIK Notes		Revolving Credit Facility			Total
As of December 31, 2010	$	95,707		$	94,734		$	—		$	—		$	—		$	—	$	—		$	190,441
PIK interest accrued	12,180			—			—			—			—			—		—			12,180
Repayment of debt	—			(8,355		)	—			—			—			—		—			(8,355		)
Debt assumed in Merger	—			—			45,146			—			—			—		—			45,146
Repayment of debt in Merger	(107,887		)	(86,379		)	(45,146		)	—			—			—		—			(239,412		)
Principle amount of borrowings at the Merger	—			—			—			155,000			85,000			30,000		9,600			279,600
Original issued discount on borrowings	—			—			—			(9,200		)	(2,550		)	—		—			(11,750		)
Repayment of revolving credit facility	—			—			—			—			—			—		(5,000		)	(5,000		)
PIK Note interest	—			—			—			—			—			875		—			875
Amortization of original issue discount	—			—			—			407			85			—		—			492
As of December 31, 2011	$	—		$	—		$	—		$	146,207		$	82,535		$	30,875	$	4,600		$	264,217

Deferred financing costs are amortized under the interest method over the term of the debt. Amortization expense is $3,171 and $1,427 for the years ended December 31, 2011 and 2010, respectively, and was included in interest expense, net in the consolidated statements of operations. Included in amortization of deferred financing costs in the fourth quarter of 2011, was expense of $1,759 to write-off of unamortized deferred financing costs (included in other assets in the consolidated balance sheet) for debt that was paid as part of the Merger.

The aggregate maturities of long-term debt (including PIK Notes) for the next five years and thereafter at December 31, are as follows:



Years ended December 31,	Long-Term Debt Maturities
2012	$	3,875
2013	7,750
2014	11,625
2015	15,500
2016	112,057
2017 and thereafter	113,410
Total	$	264,217

Interest Rate Swap Contracts

From time to time Verge had entered into interest rate swap contracts to manage interest rate risk. Such contracts fix the borrowing rates on floating debt to provide a hedge against the risk of rising rates. We were not a party to an interest rate swap contract as of December 31, 2011 and 2010.

By using derivative financial instruments to hedge exposure to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the interest rate swap contract. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rate swap contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposure that may adversely impact expected future cash flows, and by evaluating hedging opportunities.

At January 1, 2010, Verge was party to four interest rate swap agreements. One agreement required Verge to pay fixed interest of 4.41% on a total notional value of $30,000, and expired on December 31, 2010. The remaining three agreements each required the Company to pay a fixed interest of 3.6% on a total notional value of $18,000, and expired on June 30, 2010. The $18,000 amortized down along with the debt. Verge had not contemporaneously assessed the effectiveness of its interest rate swap agreements. All of our prior swaps expired during 2010. There was $1,100 interest expense related to the interest rate swaps on the 2010 consolidated statement of operations. See Note 10 — Fair Value Measurements for a further discussion of the fair value of the instrument.

In January 2012, we entered into interest rate swap agreements to manage the risks associated with our variable rate debt as required by our New Credit Agreements. These swaps fix the interest rate at 3.0% on a notional amount of $122,500 of the outstanding debt, are not designated as hedges and expire on March 31, 2015.