Long-Term Debt and Related Deferred Debt Issuance Costs

12 Months Ended

Feb. 29, 2012

Long-Term Debt and Related Deferred Debt Issuance Costs [Abstract]

LONG-TERM DEBT AND RELATED DEFERRED DEBT ISSUANCE COSTS

5. LONG-TERM DEBT AND RELATED DEFERRED DEBT ISSUANCE COSTS

Long-term debt was comprised of the following at February 28 (29), 2011 and 2012:

	As of February 28 (29),
	2011			2012
Credit Agreement debt
Revolver	$	2,000		$	6,000
Term Loan B		328,994			87,877
Extended Term Loan B		—			109,966
Total Credit Agreement debt		330,994			203,843
Senior unsecured notes		—			33,860
Less: current maturities		(3,290	)		(7,978	)
Total long-term debt	$	327,704		$	229,725

Credit Agreement Debt

On November 2, 2006, Emmis Operating Company (“EOC” or the “Borrower”), the principal operating subsidiary of the Company, amended and restated its Credit Agreement to provide for total borrowings of up to $600 million, including (i) a $455 million term loan and (ii) a $145 million revolver, of which $50 million may be used for letters of credit. The margin over the Eurodollar Rate or the alternative base rate varied under the revolver (ranging from 0% to 2.25%), depending on Emmis’ ratio of debt to consolidated operating cash flow, as defined in the agreement. The margins over the Eurodollar Rate and the alternative base rate were 2.00% and 1.00%, respectively, for the term loan facility. At February 28 (29), 2011 and 2012, $0.6 million and $0.5 million, in letters of credit were outstanding, respectively. Net deferred debt costs of approximately $2.9 million and $1.6 million relating to the Credit Agreement are reflected in the accompanying consolidated balance sheets as of February 28 (29), 2011 and 2012, respectively, and are being amortized over the life of the Credit Agreement as a component of interest expense. Substantially all of Emmis’ assets, including the stock of most of Emmis’ wholly-owned, domestic subsidiaries are pledged to secure the Credit Agreement. The Credit Agreement has been amended on various dates subsequent to November 2, 2006. The significant terms of the amendments are discussed below.

March 3, 2009 Credit Agreement Amendment

On March 3, 2009, ECC and EOC, entered into the First Amendment and Consent to Amended and Restated Revolving Credit and Term Loan Agreement (the “First Amendment”) by and among Emmis, EOC and Bank of America, N.A., as administrative agent for itself and other lenders, to the Amended and Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006 (as amended, supplemented, and restated or otherwise modified and in effect from time to time, the “Credit Agreement”). Among other things, the First Amendment (i) permitted Emmis to purchase a portion of the Tranche B Term Loan (as defined in the Credit Agreement) at an amount less than par for an aggregate purchase price not to exceed $50 million, (ii) reduced the Total Revolving Credit Commitment (as defined in the Credit Agreement) from $145 million to $75 million, (iii) excluded from Consolidated Operating Cash Flow (as defined in the Credit Agreement) up to $10 million in cash severance and contract termination expenses incurred for the period commencing March 1, 2008 and ending February 28, 2010, (iv) made Revolving Credit Loans (as defined in the Credit Agreement) subject to a pro forma incurrence test and (v) tightened the restrictions on the ability of Emmis to perform certain activities, including restricting the amount that can be used to fund our TV Proceeds Quarterly Bonus Program, and of Emmis Operating Company to conduct transactions with affiliates.

Subsequent to the execution of the First Amendment, in April and May 2009, Emmis completed a series of Dutch auction tenders that purchased term loans of EOC under the Credit Agreement as amended. The cumulative effect of all of the debt tenders resulted in the purchase of $78.5 million in face amount of EOC’s outstanding term loans for $44.7 million in cash. As a result of these purchases, Emmis recognized a gain on extinguishment of debt of $31.9 million in the quarter ended May 31, 2009, which was net of transaction costs of $1.0 million. The Credit Agreement, as amended, permitted the Company to pay up to $50 million (less amounts paid after February 1, 2009 under our TV Proceeds Quarterly Bonus Program) to purchase EOC’s outstanding term loans through tender offers and required a minimum offer of $5 million per tender. Since the Company paid $44.7 million in debt tenders and paid $4.1 million under the TV Bonus Program in March 2009, we are not permitted to effect further tenders under the Credit Agreement.

August 19, 2009 Credit Agreement Amendment

On August 19, 2009, ECC and EOC entered into the Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Second Amendment), by and among the Borrower, ECC, the lending institutions party to the Credit Agreement and Bank of America, N.A., as administrative agent for itself and the other lenders party to the Credit Agreement.

Among other things, the Second Amendment:

• suspended the applicability of the Total Leverage Ratio and the Fixed Charge Coverage Ratio financial covenants (each as defined in the Credit Agreement) for a period that will end no later than September 1, 2011 (the “Suspension Period”),

• provided that during the Suspension Period, the Borrower must maintain Minimum Consolidated EBITDA (as defined by the Credit Agreement) for the trailing twelve month periods as follows:

Period Ended	Amount (in 000’s)
August 31, 2009	$	22,800
November 30, 2009	$	21,600
February 28, 2010	$	23,400
May 31, 2010	$	23,200
August 31, 2010	$	22,400
November 30, 2010	$	22,700
February 28, 2011	$	22,900
May 31, 2011	$	23,600
August 31, 2011	$	25,000

• provided that during the Suspension Period, the Borrower will not permit Liquidity (as defined in the Credit Agreement) as of the last day of each fiscal quarter of the Borrower ending during the Suspension Period to be less than $5 million,

• reduced the Total Revolving Credit Commitment (as defined in the Credit Agreement) from $75 million to $20 million,

• set the applicable margin at 3% per annum for base rate loans and at 4% per annum for Eurodollar rate loans,

• provided that during the Suspension Period, the Borrower: (1) must make certain prepayments from funds attributable to debt or equity issuances, asset sales and extraordinary receipts, and (2) must make quarterly payments of Suspension Period Excess Cash (as defined in the Credit Agreement),

• provided that during the Suspension Period, the Borrower may not: (1) make certain investments or effect material acquisitions, (2) make certain restricted payments (including but not limited to restricted payments to fund equity repurchases or dividends on Emmis’ 6.25% Series A Cumulative Convertible Preferred Stock), or (3) access the additional financing provisions of the Credit Agreement (though Borrower has access to the Total Revolving Credit Commitment of $20 million),

• excluded from the definition of Consolidated EBITDA up to an additional $5 million in severance and contract termination expenses incurred after the effective date of the Second Amendment,

• granted the lenders a security interest in certain previously excluded real estate and other assets,

• permitted the repurchase of debt under the Credit Agreement at a discount using proceeds of certain equity issuances, and

• modified certain financial definitions and other restrictions on ECC and the Borrower.

The Company recorded a loss on debt extinguishment during the year ended February 28, 2010 of $0.5 million related to the write-off of deferred debt costs associated with the revolver reduction.

March 29, 2011 Credit Agreement Amendment

On March 29, 2011, ECC and EOC entered into the Third Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Third Amendment), by and among the Borrower, ECC, the lending institutions party to the Credit Agreement and Bank of America, N.A., as administrative agent for itself and the other lenders party to the Credit Agreement.

Among other things, the Third Amendment provides that (i) the leverage ratio and fixed charge covenants will not apply to any amounts outstanding under the Credit Agreement until November 30, 2012, at which time they will be set at 5.0x and 1.15x for the life of the Credit Agreement and from November 30, 2011 through August 31, 2012 there will be a minimum Consolidated EBITDA (as defined in the Credit Agreement) test of $25.0 million per rolling four quarter test period, (ii) the requirement that annual audits be certified without qualification will be waived for the fiscal years ending February 2011 and 2012, (iii) the ability of Emmis to engage in certain activities or transactions, including the payment of dividends, the incurrence of indebtedness and the ability to invest certain proceeds including from asset sales will be further restricted or prohibited and (iv) the terms of the existing Tranche B Term Loans held or purchased on or prior to the date of the Third Amendment by funds or accounts managed by Canyon Capital Advisors LLC (“Canyon”), are amended into an amended tranche of term loans with an extended maturity date of November, 2014. The total amount of Tranche B Term Loans outstanding as of March 29, 2011 was $329 million, and the amount of such term loans that Canyon amended into extended term loans was approximately $182.9 million. The pricing on such amended term loans is based on Emmis’ election on the following pricing grid:

Cash Portion	Paid-in-Kind Portion
7.50%		7.00	%
7.75%		6.50	%
8.00%		6.00	%
8.25%		5.50	%
8.50%		5.00	%
8.75%		4.50	%
9.00%		4.00	%
9.25%		3.50	%
9.50%		3.00	%
9.75%1		2.50	%1

Prior to the entry into the Third Amendment, Emmis entered into a backstop letter agreement, dated March 27, 2011, with Canyon (the “Backstop Letter Agreement”), pursuant to which Canyon agreed to consent to the Third Amendment and to purchase loans necessary to provide the required Lenders consent to the Third Amendment. In consideration of Canyon’s entering into the Backstop Letter Agreement, Canyon will receive an exit fee of 6% (or 3% during the first six months after the Third Amendment effective date) on the Tranche B Term Loans and revolving credit commitments held or purchased by funds or accounts managed by Canyon as of March 29, 2011. The exit fee is being recognized over the term of the extended term loans as interest expense.

The Third Amendment contains other terms and conditions customary for financing arrangements of this nature.

November 10, 2011 Credit Agreement Amendment

On November 10, 2011, ECC and EOC entered into the Fourth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Fourth Amendment”), by and among the Borrower, ECC, the lending institutions party to the Credit Agreement and Bank of America, N.A., as administrative agent for itself and the other lenders party to the Credit Agreement. The Fourth Amendment did not change any financial covenants, but amended certain provisions of the Credit Agreement to allow Emmis to purchase (either for cash or pursuant to total return swaps) its outstanding Series A cumulative convertible preferred stock with the proceeds of newly issued senior unsecured notes issued by ECC. See Note 3 for discussion of our preferred stock and below for discussion of the senior unsecured notes. In connection with the Fourth Amendment, the Company paid $1.1 million of fees to its Credit Agreement lenders. These costs were capitalized and are included in other assets, net in the accompanying consolidated balance sheets and are being amortized over the remaining life of the Credit Agreement. In addition, the Company incurred approximately $0.3 million of legal fees that were expensed as a component of corporate expenses during the year ended February 29, 2012.

See Note 18 for a discussion of the Fifth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Fifth Amendment”) and the Sixth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement (the “Sixth Amendment”).

¹  If the Company elects 9.75% Cash Portion for any payment, it may also elect to pay some or all of the Paid-in-Kind portion in cash for such period.

Expected annual amortization for the Credit Agreement based on amounts outstanding as of February 29, 2012 is as follows:

			Amortization of		Amortization of
Year Ended	Revolver		Term Loans		Term Loans		Total
February 28,	Amortization		Held by Canyon		Held by Others		Amortization
2013		6,000		1,099		879		7,978
2014		—		1,089		86,998		88,087
2015		—		107,778		—		107,778
Total	$	6,000	$	109,966	$	87,877	$	203,843

Senior Unsecured Notes

Issuance of ECC Senior Unsecured Notes

On November 10, 2011, Emmis entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Zell Credit Opportunities Master Fund, L.P. (“Zell”).

Under the Note Purchase Agreement, Zell agreed to purchase from ECC up to $35.0 million of unsecured notes (the “Notes”). The Notes, with respect to distributions upon the liquidation, winding-up and dissolution of the Company, rank senior to the Preferred Stock and common equity of the Company, but junior to our Credit Agreement. Emmis was permitted to sell the Notes to Zell on up to four separate occasions on or before February 2, 2012. The Note Purchase Agreement provided that Emmis may enter into transactions to purchase or purchase rights in its Preferred Stock through privately negotiated transactions with individual preferred shareholders and/or through a tender offer. Emmis issued, on four separate occasions in November 2011 and January 2012, Notes to Zell totaling $31.9 million to either purchase or purchase rights in 1,871,529 shares of Preferred Stock at a weighted average price of $15.64 per share and to pay $2.7 million in fees and expenses. Net deferred debt costs of approximately $0.5 million relating to the Notes are reflected in the accompanying consolidated balance sheets as of February 29, 2012, and are being amortized over the life of the Notes as a component of interest expense.

Interest on the Notes is paid in kind and compounds quarterly at a rate of 22.95% per annum, except that during the continuance of any event of default the rate will be 24.95% per annum payable on demand in cash. The Notes mature on February 1, 2015, at which time the principal balance and all accreted interest is due entirely in cash.

At any time after the discharge of certain senior obligations of Emmis and its subsidiaries described in the Note Purchase Agreement, Emmis may, upon prior written notice to Zell, redeem the Notes in whole or in part at a redemption price (including with certain make-whole amounts for redemption occurring prior to May 10, 2013) as described in the Note Purchase Agreement. Any partial redemption of the Notes shall be in denominations of at least $10.0 million and in multiples of $1.0 million in excess of such minimum denomination.

The Note Purchase Agreement contains representations, warranties, indemnities and affirmative and negative covenants that are customary for agreements of its type. The negative covenants include, without limitation, certain limitations on the ability to (1) incur liens and indebtedness, (2) consummate mergers, consolidations or asset sales, (3) make guarantees and investments, and (4) pay dividends or distributions on or make any distributions in respect of Preferred Stock or common equity. The Note Purchase Agreement also includes certain events of default customary for agreements of its type including, among others, the failure to make payments when due, insolvency, certain judgments, breaches of representations and warranties, breaches of covenants, and the occurrence of certain events, including cross acceleration to certain other indebtedness of Emmis, including its senior credit facility. In addition, Emmis is required to deliver compliance certificates demonstrating compliance with the Note Purchase Agreement and Emmis’ senior credit facility.

Borrowings under the Credit Agreement depend upon our continued compliance with certain operating covenants and financial ratios. At February 29, 2012, we had $13.5 million available for additional borrowing under our credit facility, which is net of $0.5 million in outstanding letters of credit. As discussed above, during the Suspension Period the Company must maintain a minimum amount of trailing twelve-month Consolidated EBITDA (as defined in the Credit Agreement) and at least $5 million in Liquidity (as defined in the Credit Agreement). The Credit Agreement also contains certain other non-financial covenants. We were in compliance with all financial and non-financial covenants as of February 29, 2012. Our Liquidity (as defined in the Credit Agreement) as of February 29, 2012 was $14.6 million. Our minimum Consolidated EBITDA (as defined in the Credit Agreement) requirement and actual amount as of February 29, 2012 was as follows:

	As of February 29, 2012
			Actual Trailing
	Covenant		Twelve-Month
	Requirement		Consolidated  EBITDA1
Trailing Twelve-month Consolidated EBITDA 1	$	24,000	$	26,305

Proceeds from raising additional equity, issuing additional subordinated debt or from asset sales, as well as excess cash flow, are required to be used to repay amounts outstanding under the Credit Agreement and Notes.