Summary of the Senior Lenders Subcommittee Panel Meeting

Federal Communications Commission Meeting Room

Washington, DC

January 20, 2004 (2:45 pm - 5:00 pm)

Francisco R. Montero, Moderator

The Senior Lenders Panel was comprised of A. Jerome Fowlkes, Managing
Director, BIA Financial Network; Tanya Crossley, Managing Director,
Media Group, Fleet Boston Financial; LeAnn M. Oliver, Deputy Assistant
Administrator for Financial Assistance, Small Business Administration
and G. Cabell Williams, Managing Director and Portfolio Manager of
Allied Capital Corporation. The Panel was moderated by Francisco Montero
of Fletcher, Heald & Hildreth, who is a member of the Financial Issues
Subcommittee of the Advisory Committee on Diversity for Communications
in the Digital Age.

The members of the panel were asked to address a variety of issues
including whether they perceived a decrease in the participation of
senior lenders in loans to broadcasting and media companies. They were
also asked to identify the consistent issues or financial hurdles (such
as assets to loan ratios, etc.) that they have had to overcome in
lending funds to broadcasting or telecom companies, and to describe any
regulatory hurdles (such as license transfer delays, prohibitions on
security interests in FCC licenses, etc.) that they thought might
discourage lenders. Other issues addressed were whether the panelists
felt that a lack of familiarity with the media industry and FCC
regulations discourages lenders (particularly smaller lenders) from
loaning to communications companies and whether they felt that some
lenders and regulators see the broadcast and wireless industries as high
risk due to the lack of tangible inventory and the inability to take a
security interest in FCC licenses.

[A. Jerome Fowlkes, Managing Director, BIA Financial
Network]{.underline}

Mr. Fowlkes of BIA began with a Power Point presentation showing that
there is a scarcity of senior debt available in the market for deals in
the \$5 million to \$10 million range. He noted that the two remaining
lenders specializing in smaller transactions have exited the market and
no new sources appear to be entering. Currently, according to Mr.
Fowlkes, transactions under \$5 million are very rare, and the effective
minimum is \$10 million. One of the reasons is that lenders in smaller
media and communications transactions must frequently loan against asset
value rather than cash flow. Most small deals involve the acquisition of
stations or the building of new stations with little or no cash flow. In
addition, smaller communications companies and start-ups frequently have
limitations in their management teams and they frequently seek to
finance broadcast facilities with signal strength limitations because
the more powerful stations have been taken by larger group owners.

One solution noted by Fowlkes would be to increase the involvement of
smaller local and regional banks. However, such regional banks are
frequently reluctant to engage in broadcast or communications
transactions because of a lack of familiarity with FCC regulations and
the general prohibition imposed by the FCC on the taking of a security
interest in FCC licenses. Because these smaller loans are based on asset
value (rather than cash flow), the inability to take a security interest
in the license is a disincentive. Mr. Fowlkes concluded that there
should be an effort to educate smaller regional banks on the mechanisms
for valuation of communications and media properties and the means to
effectively secure a loan. Moreover, he believed that state and Federal
banking regulators should be educated so that such broadcast and
communications loans are not mischaracterized as highly leveraged
transactions based on the asset value of the collateral.

[Tanya Crossley, Managing Director, Media Group, Fleet Boston
Financial]{.underline}

Tanya Crossley of Fleet also had a Power Point presentation. She agreed
with Mr. Fowlkes that local and regional lenders should be educated on
the process of making and structuring loans to the broadcast and
communications industry. However, she also noted that before a small
business or minority and women-owned companies can access the debt
market, they need access to opportunities. According to Ms. Crossley
such businesses need access to sizable transactions in the industry. She
believed that often small businesses and women-owned companies and
minorities are competitively disadvantaged when they\'re bidding against
larger players that have deeper pockets, larger credit facilities and
other sources of capital such as stock and currency. Ms. Crossley
recommended that potential borrowers should make an effort to network
with equity investors who frequently will have relationships with banks
and can help deliver on senior loan commitments.

Ms. Crossley said that she has seen significant consolidation in the
banking industry, which has reduced the number of players with media
expertise as well as the number of players actively participating in
syndicated financing. The impact is that there are fewer players in
general and specifically fewer players making loans below the \$10
million and \$15 million threshold.

Another banking challenge for minority and women-owned businesses,
according to Ms. Crossley, is the criteria of corporate lenders, namely
cash flow in assets, geographic diversification, minimum EBITDA of \$10
million. Because bankers are dealing with limitations on leverage as
well as loan-to-value ratios, they are limited in their dealings with an
early-stage companies. Also, she noted that, local banks are often the
first point of entry for an early-stage company. However, many of them
are not familiar with media companies\' loan structures, leverage
granted to the industry. As such the collateral that lenders take as
part of the collateral package is often stock and not the FCC license,
but she noted that you can take stock of the subsidiary holding the
license. However, that is a

structure that many local banks are not familiar with. Also, local banks
are not familiar with valuations that are in the mid-teens for
broadcasting as well as for cable. And balance sheet composition of a
media company is different as well as the income statements from that of
a traditional company that a local bank will see. As such, local banks
are not actively participating in the sector or in the space where
they\'re needed the most.

Some solutions she offered were the following: She believes that if the
minority tax certificate could be reinstated, it would provide
incentives to owners to sell to small business owners. She also believed
that banks can help by further encouraging collaboration between their
units so that a small business opportunity is directed to the right
point of entry for companies that fall below the corporate banking
threshold. Most banks have venture capital units that provide early and
expansion-stage capital. In order to expand the number of local lenders
participating in media finance, Ms. Crossley thought there could be some
educational programs or seminars that help local banks understand the
values in the industry, the history, the track record, and that there is
significant data that show the exit multiples that are obtained in these
various industries. Additionally, Ms. Crossley noted that there are some
government guarantee programs that should have their limits increased,
which would expand the number of lenders participating at the sub-\$10
million level.

[LeAnn M. Oliver, Deputy Assistant Administrator for Financial
Assistance, SBA]{.underline}

LeAnn Oliver of the Small Business Administration spoke about the SBA's
7A loan program which currently offers loan guaranties of up to \$2
million. She noted that the SBA guaranties about 16-30 media loans every
year. However, she also agreed that local lenders are frequently unaware
of the media lending process and can be discouraged from making media
loans beyond the amounts of the SBA guaranty, where the guaranty is
available. Ms. Oliver provided the subcommittee with a list of those
banks that have loaned to TV, radio or wireless companies under the 7A
program.

[G. Cabell Williams, Managing Director of Allied Capital
Corporation]{.underline}

Cabell Williams of Allied echoed the sentiment that there are currently
only two categories of senior loans, small and very large, and that the
"middle market" in senior lending to the communications industry has
effectively disappeared. Mr. Williams made the following recommendations
to improve senior lending levels: first, the SBA 7A program needs to be
improved with a lifting of the SBA guaranty ceiling of \$2 million for
media loans; and second, there should be a reintroduction of the tax
incentive policy for small and minority-owned purchasers because such an
incentive allows the borrower to have access to better quality
properties and also encourages equity investments which can frequently
bring in senior debt. Moreover, Mr. Williams noted that most banks
bundle their loans and sell them on the secondary market. The problem
small and minority entrepreneurs face is not only that they are limited
in accessing senior debt from local and regional banks because of the
lenders' lack of familiarity with the loan process for the
communications industry, but also because the buyers of the bundled debt
on the secondary market are equally unfamiliar with such loans and saw
them as posing a higher risk. Mr. Williams said that the education
process should extend not only to local and regional banks and banking
regulators, but also to those purchasers of bundled debt on the
secondary market. Mr. Williams was asked whether he had access to a list
of such secondary market purchasers and he said he would provide one to
the Advisory Committee.

[Observations and Conclusions]{.underline}

The panelists made the following observations:

-   There currently exists a "middle market" gap in approximately the
    \$2 million to \$15 million range where there exists little or no
    available senior financing for small and minority owned
    communications and broadcast companies. This is due to a reliance on
    asset based lending versus cash flow valuations.

-   Local and regional lenders, as well as purchasers of senior debt on
    the secondary market and banking regulators are relatively
    uneducated in valuation and the means of structuring senior
    financing for media and communications companies.

The panelists made the following recommendations

-   Establish an education program (perhaps in conjunction with the SBA
    or state banking associations) for local and regional banks on
    valuation and structuring loans to the broadcasting and
    communications industries.

-   Establish an education program (perhaps in conjunction with the SBA
    or state banking associations) for banking regulators on valuation
    assessing and characterizing loans to the broadcasting and
    communications industries.

-   Establish an education program (perhaps in conjunction with the SBA
    or state banking associations) for secondary market purchasers of
    senior debt on valuation, structuring and the relative security of
    loans to the broadcasting and communications industries.

-   Improve the SBA 7A program to raise the \$2 million ceiling on
    guaranties for media loans.

-   Revive the tax incentive program for small and minority owned
    borrowers and entrepreneurs in the broadcasting and communications
    industries.