Broadcast station and programming group Paxson Communications was spared an expensive payout to NBC on Monday when the Peacock elected not to exercise its right to redeem any of its $515 million-plus cache of convertible exchangeable preferred stock in the struggling broadcaster.
Nor will NBC require Paxson to pay interest accruals dating back to September. If the Peacock had triggered the put option, Paxson could have been compelled to shell out about $525 million to NBC.
That’s a major cash expenditure that Pax could ill afford. The company has been looking to reduce its $900 million debt load or possibly sell itself.
NBC’s decision to hold onto its preferred shares may suggest that it is gambling that a major deregulatory change may give it the ability to take control of Paxson in the future.
In a recent 10k filing, Paxson disclosed that without major improvements in ratings and ad sales, its business operations may not provide sufficient cash flow to support its debt service and preferred stock dividend requirements.
The West Palm Beach, Fla.-based station and program network group has been selling off stations and reducing programming hours over the past few months in an effort to raise cash, reduce debt and staunch a bleeding bottom line. Paxson on Monday also announced that it had netted $24 million through the sale of two of its small-market stations. Last month the company sold its Albuquerque, N.M., station to Spanish-lingo net TeleFutura for $20 million.
There’s been considerable tension between Pax and its 32% shareholder NBC since the Peacock acquired Telemundo last year. But relations are said to have improved somewhat since Paxson’s legal claims against NBC were dismissed in the fall.
NBC could be in a position to increase its stake in the group or buy out certain of its UHF stations should the Federal Communications Commission lift the 35% ownership cap.
In the future, NBC will have a 60-day window to redeem its Series B convertible exchangeable preferred stock beginning each Sept. 15. The Peacock’s initial investment plus accrued dividends are worth around $525 million.
Paxson controls 63 broadcast television stations in 41 of the top 50 U.S. markets. Its family-skewed Pax TV reaches some 88% of primetime television households in the U.S. (94 million homes) through its broadcast television station group and via cable and satellite affiliate deals.