WMG To Pay 9.5% On $1.1 Billion In New Notes

PLUS HOW EDGAR & LYOR CAN HELP SAVE WMG $230 MILLION AND STILL KEEP THEIR JOBS

Last week the Warner Music Group surprised analysts by selling twice the number of secured notes than it had previously announced. The $1,100,000,000 raised showed increasing confidence on Wall Street for the major label group and publishing company.

The funds raised plus $335 million in existing cash will be used to pay off previous notes according to documents filed with the SEC this morning. The $1.1 billion in new notes carry a 9.5% interest rate and come due in 7 years. At that hefty rate, the company will pay just over $410 million in interest to investors over the short life of the notes.

HOW TO SAVE $230M WITHOUT CUTTING A SINGLE JOB

Despite WMG loosing $1.1 billion (a number which coincidentally matches the amount of the notes) in the fiscal year that ended October of 2008, the two top executive Edgar Bronfman Jr. and Lyor Cohen received bonuses of $3 million and $3.25 million repsectively. Aknowledging that these bonds may not allow an early payoff, if the two execs kept their salaries ($1 million at Bronfman and $3 million for Cohen), but the board applied their bonuses to the bond debt each year, it would save WMG more than $230 million and pay the debt off a year early. (Details of the calculation after the jump.)

THE CALCULATIONS:

By applying the combined bonuses of $6.25 million as a once a year payment, a debt of $1.1 billion loaned at 9.5%, would be paid off a year earlier and save WMG $15 million in interest. $15 million plus 12 fewer monthly payments of just under $18 million per month ($17,978,000 per month X 12 months = $215,736,000) add up to a total saving of more than $230 million.

Bruce Houghton on 05/29/2009 in Major Labels | Permalink | Comments (0)

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