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Dick Clark Productions begins 2020 countdown with ABS deal

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Just in time for the countdown to 2020, Dick Clark Productions is returning with its second securitization of fees and revenues backed by its five core television broadcasts, including its "Dick Clark’s New Year’s Rockin’ Eve" (with Ryan Seacrest) program.

According to a report Kroll Bond Rating Agency, DCP will market $530 million in new Series 2019-1 notes through its DCP Rights LLC trust that previously issued $340 million in securities in 2014, a deal that also dropped just days before New Year’s Eve five years ago.

The new DCP Rights LLC 2019-1 deal will be used to pay off the 2014 notes in full as well as prepay a loan to Valence Media, which includes Dick Clark Productions among its divisions along with Billboard-Hollywood Media Group and independent television and film studio MRC. (Valence Media is the entertainment and media arm of private equity firm Eldridge Industries.)

The two tranches of notes include a $30 million Class A-1 VFN (variable funding note) and a $500 million Class A-2 tranche, each with final BBB- ratings and an interest rate of 6.375%.

The deal is structured similarly to a whole-business securitization, as it collateralized by the existing and future fees and revenue generated by the company’s core broadcasts, including the highly rated New Year’s Eve broadcast hosted by Seacrest since 2005. But the proceeds for the notes are derived solely from the core programs’ broadcasts, rather than the production company’s entire revenue stream.

Still, the deal represents an 87% portion of the production company’s annual revenue – an increase from 56% at the time of the 2014 issuance.

The other programs collateralizing the deal include the American Music Awards, the Academy of Country Music Awards, the Golden Globe Awards and the Billboard Music Awards. These shows are forecast to represent about 87% of the company’s revenues, according to Kroll.

As “appointment viewing" showcase events, the shows also have had increasing annual ratings in recent years, during a time the prime time ratings for network broadcast shows have been declining due to DVRs and time-shifted programming habits of viewers. This is allowing an increase in license fees for the core programs.

“The Core Programs continue to generate large audience sizes in highly coveted demographics, even as ratings for the rest of the broadcast industry decline,” the report stated. “DCP's shows' longevity, high production quality, brand recognition, ongoing affinity with premium viewers, and live viewership have made them highly desirable for broadcast networks and critical components of programming slates and network identities.

Also strengthening viewership is the increased social media engagement of audiences that the shows engage in, through live polling and online discussions on social media platforms, Kroll stated.

The Class A-2 notes are scheduled to amortize at a rate of about 1% a year, Kroll’s report noted, as part of the “robust” structure of the transaction. The deal also includes a minimum debt service coverage cash sweep threshold that pushes 50% of all excess proceeds to pay down notes if the DSCR falls below 1.75x (and 75% if DSCR declines to 1.65x).

Kroll’s report also details changes to the prior deal that reduce the credit risks to investors. The anticipated repayment date is four years rather than seven; and the cash-sweep proposal replaces the former cash trap mechanism of the 2014-1 Series.

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Whole business securitization