Media General Inc. has signed a deal with a group of new lenders to finance $885 million in long-term debt as part of its merger with New Young Broadcasting Holding Co. Inc.
The new debt deal substantially lowers the annual interest amount that Media General or New Young pays now — it will be about $39 million annually, based on the new deal, compared with the two companies’ current standalone annual interest expense of about $75 million.
The interest expense also is lower than what Media General expected when it announced the merger in early June. The company thought then it could reduce the combined companies’ interest expense to about $50 million a year.
“This is a significant free cash flow pickup for our company,” George L. Mahoney, Media General’s president and chief executive officer, said about the lower interest payments.
“Among its many benefits, the combination offered an opportunity to refinance our total debt at a significantly lower cost,” he said. “This became a priority for us.”
Media General was able to secure an interest rate of 4.25 percent for the new long-term debt among a group of unnamed lenders.
It is paying 11.75 percent interest now for about $300 million in bonds and 10.5 percent interest for a $300 million loan owed to Berkshire Hathaway Inc.
Media General spokeswoman Lou Anne Nabhan said the refinancing deal was well-received by banks and other lenders. “It was better received in the market than what we thought it would be.”
Media General plans to use the proceeds from the refinancing package to pay off its bonds, the Berkshire Hathaway loan and New Young Broadcasting’s $132 million in debt.
It also plans to use the money to contribute $50 million to its pension plan.
The company also secured a $60 million five-year revolving credit line at a 3.75 percent interest rate.
Media General, which owns 18 television stations, plans to merge with New Young Broadcasting, a privately held company that owns 13 television stations in 10 markets, including WRIC-Channel 8 in Richmond.
The merger is expected to be completed late in the third quarter or early in the fourth quarter, the company said.
Media General got out of the newspaper business last year, largely by selling 63 publications, including the Richmond Times-Dispatch, to a subsidiary of Berkshire Hathaway.
Media General said it expects to get about $15 million in operating synergies when the merger is completed with New Young Broadcasting, most of which will be realized within 12 months after the deal is completed.
With the new financing in place, Media General said it plans to acquire more television stations, particularly focusing on creating more duopolies in which two stations in the same market share common ownership.
“Media General looks forward to providing enhanced value to our shareholders as an acquirer in ongoing industry consolidation opportunities,” Mahoney said.