The Billboard Insider Podcast
00:11:28 · John Weller
[00:11:28] S1: Well, it's hard to pick one thing, but let me give a couple of basics and I'm gonna start really basic. This is more operational even on the accounting side, which is keep good records. If you wanna deal with the lending market to be able to show that you can produce timely, quality management information is a real plus. Lenders love the timeliness, consistency and quality of financial information. So to me, that's a really important thing for any business of any size. Another thing is particularly as you're working with lenders, deliver news early, and that's whether it's good news or bad news. You know, there's a tendency if you have good news, you call your banker and tell them right away. But I think you're gonna find that even being timely on bad news and also with an explanation of what's going on and how you're gonna fix it, if it's a problem of some type, is one that you can create a very strong relationship with a lender if you're willing to be that upfront with a lender on a consistent basis. A couple of small things we've run into historically that unfortunately I can tell stories about, Dave's obviously aware of it, you're aware of it too, is a lot of businesses don't think about the need for key man life insurance for small companies. The value of being able to pay a lender off in the unfortunate circumstance where maybe an owner passes away is a real gift that you could give to your family. And unfortunately, we've had two times where we've had loans paid off because of the death of a owner operator, but fortunately they took the time to put key man insurance in place or had a life insurance policy in place, and it paid off the full amount of the debt and left the company with their family debt free.
00:13:16 · Dave Westburg, John Weller
[00:13:16] S0: So what do I do if I am in poor health and I may have a medical condition that makes key man difficult, prohibitively expensive, impossible to get? [00:13:27] S1: Well, from a lending standpoint, what we want to see is that there's some level of transition set in place, so that we know as a lender that if something were to happen to... In a lot of small businesses, it's one person who who basically is making the bulk of the decisions. And if there's a plan in place for another qualified individual, whether it be a family member or a trusted employee, where they will step in and run the business and be able to demonstrate they have the capability, That's a very important thing to have and to make a lender aware of as as they're looking at the possibility of having you as a borrower. [00:14:09] S0: John, I wanna switch gears and go macro, go from individual lending situations to a sort of macro industry as a whole. Let's start first with the big three public U. S. Out of home companies. In one word, how would you evaluate the leverage of the three public US out of home companies? Let's start with Lamar. [00:14:32] S1: Oh, wow, you're putting me on the spot. Lamar, my one word for them would be consistency. And the reason for that is they typically have lower leverage. I think currently their ratio of debt to equity is about 3.3 times, and that provides them room for growth like we recently saw with the Fairway acquisition. Consistency for Lamar would be a good one word. [00:14:56] S0: How about out front?
00:14:56 · Dave Westburg, John Weller
[00:14:56] S0: How about out front? [00:14:57] S1: Out front, I would, the one word I would use for out front is aggressive. They obviously have been making big bets on transit, particularly with their New York and Boston contracts, And leverage is a bit higher, but still within reasonable range, but it's higher than Lamar. They tend to run-in about the four and a half range. [00:15:17] S0: And that brings us to Clear Channel. [00:15:19] S1: Yeah, that one's a little more interesting. I'll say my one word for Clear Channel is uncertainty. They're currently leveraged at over eight times, which is too high. I mean, it needs to over time be brought down lower. And the uncertainty is what happens later this year when iHeartMedia moves out of bankruptcy and Clear Channel separates from iHeart. There's a lot of opportunity, but what happens may depend on their ownership group, which initially will be made up of the iHeart lending group. Personally, know, having spent some time in the lending community, I don't think they're gonna be a very patient group and they may look to monetize their investment, which could create some interesting situations for Clear Channel. But keep in mind, and as most people who've read us on Insider, I mean, we are Clear Channel fans and have felt all the way along that if they could get separated from my heart, that there was a lot of opportunity for Clear Channel.
00:15:19 · John Weller, Dave Westburg
[00:15:19] S1: Yeah, that one's a little more interesting. I'll say my one word for Clear Channel is uncertainty. They're currently leveraged at over eight times, which is too high. I mean, it needs to over time be brought down lower. And the uncertainty is what happens later this year when iHeartMedia moves out of bankruptcy and Clear Channel separates from iHeart. There's a lot of opportunity, but what happens may depend on their ownership group, which initially will be made up of the iHeart lending group. Personally, know, having spent some time in the lending community, I don't think they're gonna be a very patient group and they may look to monetize their investment, which could create some interesting situations for Clear Channel. But keep in mind, and as most people who've read us on Insider, I mean, we are Clear Channel fans and have felt all the way along that if they could get separated from my heart, that there was a lot of opportunity for Clear Channel. [00:16:16] S0: Freedom is a good thing for Clear Channel. John, you've been in the out of home lending business now through three business cycles. Let's talk about the current lending market and where are we in the current lending, out of home lending cycle?
00:16:33 · John Weller
[00:16:33] S1: Well, it's an interesting time. I mean, obviously the lending industry tends to be very predictable and it would be nice if, you know, it was a little less predictable in terms of cycles, but typically as you go through a cycle, you'll come out of a recession, whether it be a short recession or, you know, obviously our last recession was very prolonged. And then you're dealing with practical conservative lenders. You'll see that typically right after a downturn where they'll stay, kind of stick to their knitting and say, these are good conservative standards we wanna live by. The next phase you're gonna see will be lenders searching for growth. And typically that's when their growth in profits is slowing from their existing customers. And so you'll start to see a push to bring in new business. The next cycle, and this is probably where we are right now, Dave, I would call it a frenzy of growth. The lending market will become very aggressive in search for growth opportunities and start looking beyond traditional markets to maybe consider some other markets. And we're in this part of the cycle, and it has been very favorable to outdoor. And then typically as you enter into recession, you know, they're gonna pull back and we're gonna start the whole cycle all over again, but that pullback usually means that it can be a little difficult on smaller owner operators if they have any kinds of issues, or if the interest rates get too high or they have trouble handling debt service, because the bankers tend to look to what they're familiar with, and tend to move away from those things, even though they made a commitment to the market in their growth frenzy, that they've decided maybe they need to pull back on it now.
00:18:15 · Dave Westburg, John Weller
[00:18:15] S0: It's a last in, first out phenomenon. It's the last market they got in, in a recession, and when the credit guy says, we really need to shrink, we gotta focus on what we do best, it's the first market that's jettisoned. [00:18:27] S1: Yeah, absolutely. And so Dave, I'm gonna ask you a question because obviously you're in the middle of this lending business with me too. And that would be, as we're looking at our current marketplace right now, where we're in a situation where, you know, there is a little, well, not a little, there's a lot more aggressiveness in the banking community. I mean, what are you seeing from your side and what are some suggestions or some things that you might suggest to the outdoor community?