SCA has entered into a long-term relationship with the Australian Traffic Network for it to provide traffic reports for broadcast on SCA radio stations.
The broadcaster will receive payment from ATN in return for its station broadcasting advertising tags, provided by ATN, attached to news and traffic reports.
ATN has been providing traffic reports for SCA for over 10 years. The new contract came into effect on 1 February 2016.
SCA’s CEO Grant Blackley said, “The arrangement fits with our focus on localism in radio.
“The new contract has enabled SCA to accelerate its capital management initiatives by utilising the initial up-front cash payment for debt reduction. This completes our balance sheet repair process, enables SCA to resume paying full cash dividends and provides a stronger balance sheet for the future.”
Key terms of contract:
• 20-year contract extension with ATN, with an option for ATN to extend by 10 years
• $207 million contract value, crystallising long-term value for traffic and news radio inventory reducing contract volatility
• $100 million up-front cash payment to SCA on 9 February 2016
• Additional annual recurring payment to SCA from 1 February 2017 of $2.75 million, indexed annually by the lower CPI and 2.5%. This payment will continue if the contract continues beyond the initial 20 years.
• ATN will continue to provide advertising attached to news and traffic reports, equating to approximately 3% of total metro radio inventory and 0.5% of regional radio inventory.
• The most recent contract commenced in 2011 and would have expired in October 2016. That contract would have delivered EBITDA of approximately $6 million for the remaining five months of FY2016.
What the SCA will use the money for:
• The $100m up-front cash payment will be used by the company to reduce leverage and financing costs and to provide future balance sheet flexibility:
– $50m will be used to reduce and cancel senior debt, reducing the current facility limit to $505m
– $50m will be used to reduce debt but will be available to redraw, providing balance sheet flexibility
• The $100m prepayment of debt will reduce net debt to approximately $375m
• Leverage ratio, pro-forma for $100 million up-front cash, will be reduced to 2.0-2.1 times
• The dividend reinvestment plan will be suspended and full cash dividends will resume with the interim dividend for FY2016. The interim dividend is expected to be in line with existing payout policy.
Source: Southern Cross Austero