The head of Nexstar has made a management deal with the bankrupt station group’s likely new owners — Young’s senior secured lenders — for all of the troubled group’s 14 stations except KRON San Francisco. The likely result looks to be Sook’s eventually taking over ownership in a few years after he builds up their equity value.
Nexstar boss Perry Sook may end up as the manager — and eventually the owner — of all the bankrupt Young Broadcasting stations except KRON San Francisco.
Sook has entered into a management contract with the bankrupt station group’s likely new owners — Young’s senior secured lenders — a broadcast industry source familiar with the situation told TVNewsCheck.
Those new owners, assuming their $220 million bid passes muster in U.S. Bankruptcy Court, will be Highland Capital, Eaton Vance, Credit Suisse, PIMCO and Oppenheimer.
Sook’s deal and the creditors’ bid do not include the troubled KRON, which Young CEO Vincent Young will keep, the source said. “The lenders are willing to do this as the cost of getting Vincent to cooperate.”
Sook and Nexstar stand to benefit the most from the arrangement.
“Perry is getting this deal for the same reason he got Four Points,” the source said. “Favored nation status [with cable and satellite operators, program suppliers and vendors] works perfectly for him…. In the first year, he’ll do well north of $20 million in revenues [from the Young stations], half from retrans and half from cost savings.”
In the Four Points deal, cut earlier this year, Nexstar assumed management of seven stations in four markets owned by a private equity firm for a yearly fee of $2 million plus bonuses for boosting cash flow. The deal guarantees Nexstar $10 million in fees and a share of equity profits if the stations are sold while the agreement is effect.
“Better than owning [the Young stations] now, [Sook] gets paid to build up equity value he participates in and down the road he buys them himself,” the source said. “In one fell swoop on retrans, he doubles cash flow on day one. That normally takes four to five years. Once he runs these things for a couple years, who’s the logical buyer? The only logical buyer is Nexstar.”
“Perry’s skill set is operating,” said another source in the financial sector. “The problem is Nexstar still has some challenges of its own.”
Key among those: reducing its debt leverage. Nexstar’s name often arises in speculation about impending broadcast bankruptcies. So far, Sook has managed to dodge the bullet by cutting costs and forging deals that actually reduce Nexstar’s leverage.
That’s what Sook did with the purchase of WCWJ Jacksonville, Fla., for about five-and-a-half times cash flow.
Sook could not be reached for comment on his involvement in the Young backruptcy.
The management deal would be a boon for others as well. It speeds the case toward resolution, bringing clarity for Young employees and the sector in general. It also helps the lenders pare losses and gives them a chance of being made whole long term.
Still, the $220 million bid price — $200 million for the assets and about $20 million for administrative and other claims — represents about a 40 percent discount on the roughly $360 million the lenders are owed.
That price values Young stations other than KRON at about 5.5 times projected average cash flow for 2008 and 2009, sending a message to other station groups coping with the prospect of bankruptcy that they can expect similar multiples when their turn comes.
In addition to KRON, the group comprises 13 stations, mostly ABC and CBS affiliates in middle and small markets. WKRN, the ABC outlet in Nashville (DMA 29), is the biggest of the lot.
It’s a positive resolution to Young’s painful slow-motion train wreck of a bankruptcy that started when the company outbid NBC and bought KRON for a staggering $823 million in 2000, hoping it would become the station group flagship.
Instead, after NBC pulled its affiliation, KRON became a sea anchor for Young and, coupled with the economic downturn, dragged the station group into bankruptcy in February.
The lender group was one of four bidders that met last Friday’s bid submission deadline, said Kevin Shea of Loughlin Meghji, a financial restructuring firm advising the lenders.
Shea declined to name any of the bidders. However, sources in the financial and broadcast sectors confirmed the lenders’ names.
Two separate bidders offered $120 million and another bidder indicated it was willing to offer $215 million, but that offer failed to comply with bidding procedures and was set aside by Young, Shea said.
Over the weekend, the two remaining bidders at $120 million were given the opportunity to match the lenders’ bid but declined, Shea said.
“Loughlin Meghji arrived at auction [Tuesday] with no other bidders present,” Shea said.
With only one acceptable bid in hand, Young canceled Tuesday’s scheduled asset auction. In a hearing before U.S. Bankruptcy Court Judge Arthur Gonzalez on Wednesday, Young’s bankruptcy counsel characterized the lenders’ bid as the “highest and best.”
The parties are scheduled to meet with Gonzalez next Wednesday. “We’re looking forward to having our bid ordered [approved],” Shea said.