SESAC, which is the third largest performance rights organization in America after ASCAP and BMI, has announced that it has refinanced its capital structure by selling $530 million in corporate bonds.
SESAC further received an additional $30 million in revolving credit. The bond sale was reportedly heavily oversubscribed.
The funds replace the amount of debt that Blackstone Core Equity Partners Fund used to acquire SESAC back in February of 2017. But the new debt is far cheaper than the old, providing the organization with a savings of 140 basis points. This, in turn, reduces the organization’s interest cost from 6.6% to roughly 5.2%. In terms of hard dollars, this means that the company saves almost $7 million a year in debt servicing costs, reducing these costs from $34.5 million to $27.7 million.
The deal is notable because it is the first of its kind in the music business, at least on this massive of a scale. Backing the bonds are the company’s assets and income sources, which includes its songwriter contracts and extensive music user licenses. The considerable package of assets, licensing infrastructure and royalty deals helped SESAC sell its bonds at such a low interest rate.
Also notable is the fact that the bonds are secured, which means that if SESAC in the future files for Chapter 11 bankruptcy protection (or any other Chapter, for that matter), the bond holders would receive money from the company’s liquidation before anyone else, including rights holders.
At the moment, though, the organization is doing quite well. Its latest financials show an annual pretax earnings of nearly $80 million, based or revenues of almost $275 million. Still, its debt-to-earnings ratio is considered high at 6.7. But SESAC has been managing high levels of debt for nearly a decade — which means the high-risk posture hasn’t resulted in disaster.
The $30 million in revolving credit SESAC received has not been used, and the company is now aiming to combine its relatively strong cash flow to better finance operations and expansion initiatives.
Playing with fire here
this is not the first such deal for SESAC , i worked on many of these deals in late 90’s early 2000’s known as “Bowie Bond “deals back then. I also worked in house for Bowie’s managers at that time as well. Anyway I remember SESAC doing one of these deals back then