CONSIDERATION AND APPROVAL OF A LOAN AGREEMENT BETWEEN WASATCH PUBLIC MEDIA, INC., AND THE REDEVELOPMENT AGENCY OF SALT LAKE CITY

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1 DATE: October 7, 2011 ITEM: RE: PROJECT AREA: PREPARED BY: 8.A. CONSIDERATION AND APPROVAL OF A LOAN AGREEMENT BETWEEN WASATCH PUBLIC MEDIA, INC., AND THE REDEVELOPMENT AGENCY OF SALT LAKE CITY Central Business District Jill Wilkerson-Smith EXECUTIVE SUMMARY: The RDA has been approached by Wasatch Public Media, Inc. ( WPM ) with a loan request in an amount not to exceed $250,000 to pay off a $400,000 loan that will be due on October 31, 2011 with National Cooperative Bank ( NCB ), a lending institution in California. KCPW, one of WPM s flagship stations, is currently conducting its fund drive, and will utilize these funds to pay down the loan. However, it is unlikely KCPW will raise adequate funds during the fund drive to pay its loan balance in full. Therefore, WPM is seeking gap funding from the RDA to pay its outstanding loan obligation, and may request another loan in the near future to pay off an additional $1.8 million loan obligation due in September ALTERNATIVES: 1) Agree to enter into a Loan Agreement with WPM in an amount not to exceed $250,000, and direct staff to proceed with processing the loan as further described below. 2) Agree to enter into a Loan Agreement with WPM in an amount not to exceed $250,000, and direct staff to proceed with processing the loan with modifications as directed by the Board at the meeting. 3) Reject WPM s loan request. FUNDING: Revolving Loan Fund: Amount to be determined. LOAN COMMITTEE RECOMMENDATION: The Loan Committee will meet on October 10, and staff will convey the Loan Committee recommendation at the Board Meeting. ANALYSIS AND ISSUES: Background: Two weeks ago, the RDA was approached by WPM with a request to assist in paying off one of two loans with NCB by securing a loan through the RDA for the remaining NCB loan balance. The loan is due on October 31, 2011.

2 Currently, WPM has three loans outstanding, the balance and additional information are as follows: Lender Loan Due Date Purpose Amount NCB ( Loan A ) $400,000 October 31, 2011 KCPW Station Purchase NCB ( Loan B ) $1,800,000 September 30, 2012 KCPW Station Purchase Public Radio Fund, LLC $618,000 September 30, 2012 Interest payments for Loan A and Loan B In 2008, KCPW was purchased by WPM for $2.4 million to prevent the station from being purchased by a large radio holdings company. At the same time, WPM secured a third loan through Public Radio Fund, LLC, to hold in escrow and use to make interest payments to NCB for Loan A and Loan B. WPM makes monthly interest payments to Public Radio Fund in the amount of $3,605. WPM is requesting the RDA commit to funding a loan of up to $250,000, the amount of which would be more specifically determined after its current fund drive. WPM is proposing that a portion of its October fund drive donation proceeds be used to pay down NCB Loan A, and that the RDA loan will fund the gap. The loan would carry a term of six months. WPM anticipates that a second donation drive later this fall will generate sufficient proceeds to repay the RDA loan within this timeframe. Staff has reviewed financial information provided by WPM for its loan request. Below is a synopsis of WPM s financial status: WPM Sources & Uses: Attached to this memo is a Sources and Uses statement for WPM for the fiscal year. WPM s gross profit for was $1,176,531, which was largely derived from corporate and private contributions, and grants. Other sources of income were received through special events sales and miscellaneous revenue. WPM s expenses for the year totaled $909,917, comprised mostly of payroll and programming expenses. WPM is billed either quarterly or annually for programming from National Public Radio, Public Radio International, and The Corporation for Public Broadcasting. In reviewing its 90-day aging report, most obligations were paid, with the exception of payments to the above mentioned institutions. WPM has explained that a few other outstanding obligations, including its tenant improvement costs and website 2

3 development expenses, are partially paid as donations are received. The vendors have agreed to certain payment structures proposed by WPM in advance. In , WPM also paid $195,151 in loan and interest payments to Public Radio Fund, LLC, and NCB. WPM Balance Sheet: Below is a synopsis of WPM s Balance Sheet for the fiscal year. WPM Balance Sheet Summary: July 1, 2010 June 31, 2011 Assets Liabilities & Equity Current Assets: Liabilities Cash 256,030 Current Liabilities: Accounts 251,260 Accounts Payable 160,437 Receivable Other 50,286 NCB Loan A 306,505 Total Current Assets: 558,116 Other 6,046 Total Current Liabilities 472,988 Fixed Assets: Long Term Liabilities: License for ,177,183 NCB Loan B 1,800,000 License for ,000 PRF Loan 618,000 Other 139,871 Total LT Liabilities 2,418,000 Total Fixed Assets: 2,567,054 Equity Temp. Restricted Net 25,000 Assets Unrestricted Net Assets 137,717 Net Income 71,464 TOTAL ASSETS: 3,125,169 TOTAL LIABILITIES & EQUITY 3,125,169 WPM s most valuable assets are its two FCC licenses. The appraisal reports for both FCC licenses suggest that valuation is derived from a measurement of listenership. KCPW just received a new appraisal for its 88.3 frequency that states its value at $2.9 million, $722,817 higher than its stated book value. The appraised value of its frequency was determined to be valued at $250,000 in November WPM s June 2011 Balance Sheet indicates a more recent valuation of the 88.3 station frequency at $2,177,183. Staff used the latter value to determine WPM s loan-to-value calculation. 3

4 To better understand WPM s liquidity, staff calculated a quick ratio using WPM s 2011 current assets and current liabilities. A quick ratio of 1.1 or higher demonstrates a company has adequate capability to pay its debts. WPM s quick ratio is Ratio Analysis: Staff has performed a loan analysis, which is attached to this memo. WPM s loan-tovalue is 85%, which falls into the RDA s allowable maximum of 95%. Staff has determined WPM s current debt coverage ratio is 1.37, which is above the RDA s 1.1 minimum requirement. Proposed Loan Structure: WPM has expressed its willingness to undertake a short-term loan with the RDA, with the goal of paying off the loan after its holiday fund drive this December. Staff recommends the loan be structured as an interest-only, 6-month loan with a 5% annual rate. Future Projections for KCPW: WPM has provided the RDA with budget proformas for , which are attached to this memo. These proformas forecast a substantial increase in revenue in WPM has explained this increase by indicating it has obtained additional expertise for the purpose of increasing its donations. Expenses increase slightly due to additional staff needs.. WPM projects a net income of $491,139 in , $426,922 in , and $438,278 in On each projected cash flow sheet, WPM lists a payment plan below its net income calculation. In , they intend to pay PRI and NPR programming balances in full. They will also pay off Loan A (to be financed through the RDA), as well as pay principal on Loan B to NCB. In , they indicate they will pay down an additional $431,328 in principal toward Loan B.. This assumes WPM has refinanced its $1.8 million loan with another lending institution. WPM s projection for has a similar debt payment strategy as the previous year. Factors to Consider: If the RDA Board elects to grant WPM a loan, the RDA will be in a third position behind two outstanding obligations totaling $2,418,000. While WPM meets the debt coverage and loan-to-value ratio requirements set forth by the RDA, it has minimal cash assets to claim. NCB s loan is in a first position, with a security agreement that claims rights to a wide range of collateral, including WPM s FCC licenses. PRF is in second position, and holds second claim to the sale of WPM s FFC licenses, as well as UCC-1 filings on equipment. 4

5 In order to preserve WPM s future as owner of KCPW, it has expressed an interest that the RDA assist them in paying off Loan B, in the amount of $1.8 million. The Board may wish to ask WPM about details regarding its long-term strategy for handling this debt. BACKGROUND: Wasatch Public Media is a Utah non-profit corporation formed on September 12, 2007 for the sole purpose of acquiring KCPW from Community Wireless of Park City ( CW ), a Utah non-profit corporation. WPM began operating KCPW on May 1, 2008 through an operating agreement with CW. The purchase of KCPW was completed on September 24, ATTACHMENTS: 1. WPM Sources & Uses Statement 2. WPM Balance Sheet 3. WPM Projected Cash Flow Budget, KCPW Request 5

6 July 2010-June 2011 Sources & Uses Statement: Wasatch Public Media, Inc. INCOME EXPENSE Gross Profit: 1,176, Grants: Business Expenses: Other Types of Expenses: Less Ordinary Expenses: 909, Governmental Grants 179, Estimated Bad Debt 16, Advertising/Help Wanted Less Mortgage Interest*: 195, Subtotal 179, Busines Registration Fees Insurance 6, NET ORDINARY INCOME: 71, Subtotal: 16, Interest Expense 3.26 Public Support: Memberships and Dues 14, Foundations/Non-Profit 58, Programming Expenses: Other Costs 1, * Includes interest payments to PRF and NCB. Business/Industry 340, Program Acquisition 215, Staff Development Colleges/Universities 17, Production Costs Volunteer Expenses Gifts In-kind (Goods) 15, Subtotal: 215, Bank & Financial Fees Individual Contributions 37, Other 1, Restricted Contributions 12, Contract Services: Subtotal 25, Contr. Ind.-Capital Phase 2 47, Accounting Fees 23, Pledge Drive Contributions 407, Fundraising Fees 2, Payroll Expenses: Subtotal 937, Legal Fees 2, Wages and Salaries 380, Outside Contract Services 18, Employer FICA 28, Indirect Public Support: Credit Card Processing 14, SUI 1, United Way Subtotal 61, Employer-paid Emp Insurance 34, Subtotal: Workers Comp 5, , Facilities & Equipment: Payroll Expenses-Other Investments: Amotization 14, Subtotal 450, CD Depreciation 23, Subtotal: Janitorial & Maintenance Travel & Meetings: Rent, Parking & Utilities 16, Meals & Entertainment Other Income: Other Converences/Conventions Inventory Sales Subtotal 54, Travel Misc. Revenue 1, Mileage/Local Transportation Special Events Sales (Non-gift) 55, Equipment Rental & Maintenance: Subtotal: Subtotal 57, Tower Site Rental 22, Rental & Maintenance 4, TOTAL EXPENSES 909, TOTAL INCOME 1,176, Equipment Purchase > $ , Subtotal 28, Less: COGS Cost of Goods Sold: Inventory Sales Operations: Gifts In-Kind Expense GROSS PROFIT 1,176, Website/Internet Books/Periodicals 1.49 Postage/Mailing 5, Printing & Copying 11, Supplies/Minor Equipment 3, Telecommunications/Phone 28, Software licenses & Fees 6, Subtotal 56,917.08

7 KCPW Assets (as of ) KCPW Liabilities & Equity (as of ) CURRENT ASSETS FIXED ASSETS CURRENT LIABILITIES EQUITY Cash & Cash Equivalents: Furniture and Equipment 50,522 Accounts Payable 160,437 Temp. Restricted Net Assets 25,000 Bank Balance as of 9/30/ ,306 License: 88.3 FM 2,177,183 Payroll Liabilities 6,046 Unrestricted Net Assets 137,717 Restricted Cash 172,724 License: ,000 NCB Capital Loan (Loan A) 306,505 Net Income 71,464 Total Cash 256,030 Leasehold Improvements 8,975 Total Current Liabilities: 472,988 Satellite 48,619 Accounts Receivable: Tower Equipment 71,400 LONG TERM LIABILITIES Underwriting Receivable 177,000 Translator Equipment 10,287 Capital Pledges Receivable 90,634 Start up Costs 54,051 Notes, Mortgages & Leases: Allowance for Doubtful Pledges -17,000 Accum Dep: FF&E, Tower, LH -50,923 NCB Capital Loan (Loan B) 1,800,000 Other 625 Accum Amort: Start up Costs -53,070 PRF Capital Loan 618,000 Total Accounts Receivable 251,260 Security Deposits Asset 10 Total Long Term Liabilities 2,418,000 Other Current Assets: TOTAL FIXED ASSETS 2,567,054 TOTAL LIABILITIES 2,890,988 TOTAL EQUITY 234,181 Allowance for Doubtful Underwriting/Pledges-31,000 Sales Tax Receivable 420 Pledge Drive Receivable 46,181 Undeposited Funds 27,109 Inventory Asset 2,833 Prepaid Insurance 2,014 Prepaid Employee Parking 410 Prepaid Dental 342 Prepaid Medical -133 Life, ADD, LTD 65 Prepaid Workers Comp 1,752 Other Prepaid Expenses Total Other Current Assets 50,826 TOTAL CURRENT ASSETS 558,116 TOTAL ASSETS 3,125,169 TOTAL LIABILITIES & EQUITY: 3,125,169

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11 Loan Analysis Worksheet Loan Applicant: Wasatch Public Media, LLC Property Address: Library Square, SLC, UT RDA Loan Amount Requested: $250,000 NOI Calculation Total Sources: $ 1,176,532 Total Uses: $ 1,105,068 Net Operating Income $ 71,464 Loan to Value Calculation Outstanding Debt: NCB Loan B 1,800,000 Public Radio Fund Loan 618,000 RDA Loan 250,000 Total Outstanding Debt: 2,668,000 Asset Value: 3,125,169 Loan-to-Value: 85% 95% maximum Debt Coverage Ratio Calculation Net Ordinary Income 266,615 Annualized Debt Payments: 195,151 Debt Coverage Ratio: minimum

12 DRAFT October 3, 2011 RDA Emergency Fund Request Wasatch Public Media, Inc., a Utah non profit corporation ( WPM ) is seeking an emergency short term loan ( RDA Loan ) from the Redevelopment Agency of Salt Lake City ( RDA ) for the limited purpose of helping WPM payoff a loan that is due and owing on October 31, The loan is one of three loans taken out by WPM in September of 2008 to purchase KCPW public radio located at Library Square in Salt Lake City. The amount of the RDA Loan will not exceed $250K. The intent is to pay the RDA Loan within 180 days. Why the Request for an RDA Loan? KCPW was purchased in September of 2008 by WPM, a newly formed Utah non-profit corporation. The purchase price was $2.4M, plus WPM had to cover the cost of operating the Station for six months during the period of time it took WPM to get approval from the FCC to transfer the 88.3 and licenses to WPM and to complete all of the due diligence required by the purchase agreement ( Purchase Agreement ). WPM was given a little over a four months to purchase the Station or it would be sold to a conservative national religious radio chain. During that time period WPM raised over $828,083 in pledges and paid donations and obtained financing to cover the costs of purchasing KCPW. There were three loans to the financing component totaling $2.8M. The first two loans equaled $2.2M covering the purchase price not including the $200K down payment made by WPM and a third loan in the amount of $618K used to pay the interest on the $2.2M loans through September of The first loan of $400K is due no later then October 31, The second loan of $1.8M is due September 30, The lender, National Cooperative Bank ( NCB ), is not interested in refinancing the two loans. NCB has indicated that if the first loan is not paid in full by October 31 it will place WPM in default and declare not only the first loan due but the second loan due and owning. The net effect would be to take KCPW off the air. The third loan, due September 30 of 2012 comes from a non-profit foundation. It has indicated it will work with WPM if the two other loans are either paid off or refinanced. Why wasn t the $400k loan paid off by the due date? There were $236,000 of pledges raised during the four month period that could have been used to pay off the first loan but have not been paid. Every attempt has been made to collect those pledges. As late as January 31, 2011 the largest unpaid pledge donor ($175K) assured WPM the pledge would be honored. Every effort had been made to raise the funds 1

13 for the first loan without using KCPW s airwaves so we would not be mixing messages for both the debt reduction and annual operating support. It did not work. What is WPM doing to pay off the first loan prior to October 31, 2011? WPM has made the decision to use its regularly scheduled Fall 2011, 12 day on-air Pledge Drive to not only ask for operating funds ($200K) but also to help cover the $250K balance on the first loan. In addition, WPM has put into place an accelerated fund-raising strategy through October 31, 2011, and will continue to use the airwaves to pay off of the first loan. If the first loan is paid by October 31, 2011 (with or without the help of the RDA Loan) KCPW will continue to aggressively fund-raise through the end of the 2011 calendar year. WPM has retained the services of a seasoned and highly recommended out-side consulting firm, John Sutton and Associates. Sutton specializes in working with public radio stations to enhance their fund-raising capabilities in the areas of on-air drives, , direct mail and the use of other social media outlets. Is KCPW worth the investment? We believe the answer is, yes. KCPW went on-air in Salt Lake City in November of KCPW was launched as an all news and information format with no music or talk shows and was licensed to Community Wireless of Park City, a Utah non-profit corporation. All broadcast and office functions came from Park City. It was not until 2004 that the original broadcast studio was opened at the then new Salt Lake City Public Library at Library Square. In a little over three years since the purchase KCPW has increased its average weekly listenership to over 60,000 (an increase of more then 100 percent) and has secured new long-term lease terms on its current space at Library Square as well as the locations for its new satellite dish (on Library Square) and two towers. It s underwriting and fund-raising continues to increase even during difficult and challenging economic times. KCPW is the only independent public radio voice covering the greater Salt Lake metropolitan area that focuses on local issues that impact the every day lives where listeners live, work and recreate. For example, KCPW has launched two local programs aired daily, Politics Up Close (Friday at 9AM with host Jeff Robinson) and CityViews Monday through Thursday at 9AM with host Jennifer Napier-Pearce. In addition KCPW continues to give non-profit organizations twice a day, aired on KCPW s Community Calendar, an opportunity to broadcast upcoming fund-raising events. Funding Sources to Operate KCPW KCPW receives a $147K annual grant from the Corporation for Public Broadcasting. The FCC allows KCPW to air paid underwriting messages of support for either public radio or KCPW. It is a charitable contribution and not paid advertising. The FCC has very strict policies and procedures on what those messages can say or not say. Stations are subject to 2

14 monetary damages if they are found to be in non-compliance. KCPW is unique in that rather then using professional radio voices, most of its underwriting messages are voiced in the first person by the underwriter. And, most all of the underwriters represent businesses or organization headquartered in Salt Lake City. The FCC allows KCPW to use its airwaves to fund-raise for the Station. Currently KCPW does two on-air 12 day pledge drives per year. It also does two on-line and on-air auctions per year. Like other non-profits KCPW uses direct mail, and special events to raise funds. The FCC allows KCPW to do on-air and website messaging as trade for services. Currently KCPW charges $50 for 20 to 30 second on-air trade messages. KCPW does a significant amount of trade for services with the Salt Lake City Public Library (rent), and Kennecott (rent). KCPW partners with non-profits by providing on-air messaging for events in exchange for recognition as a sponsor of the event. For example, Farmer s Market, People s Market, Twilight Concert Series, Utah Arts Festival and Museum of Natural History lecture series. 3