Amid Cumulus Bankruptcy, Rival iHeartMedia’s Financial Situation is Even More Dire
This week the radio landscape in America was shaken by the revelation that Cumulus Media had filed for Chapter 11 bankruptcy. Though the ramifications of that bankruptcy are yet to be fully revealed, and may not be as devastating as some predict or hope since the company still has plenty of cash reserves and a plan of how to climb out of significant debt, the story is much more serious for Cumulus Media’s principal rival, and the largest radio station owner in America.
iHeartMedia will likely be filing for its own bankruptcy soon enough, but the situation is so difficult for the radio giant, they can’t even come to a resolution with creditors to file for bankruptcy protection at the moment. Where Cumulus Media used Chapter 11 to resolve some $1 billion dollars in overhanging debt, iHeartMedia is looking to get out from under a whopping $7.7 billion in responsibility, which would still leave the company with $7 billion more of their estimated $15.5 billion in debt on the balance sheet.
The problem is, the creditors who hold iHeartMedia’s debt are not biting on iHeartMedia’s proposals for a debt restructure. They are holding out for better terms, which ups the possibility the radio giant could be headed for total implosion or liquidation.
iHeartMedia told the SEC on Thursday, November 30th that their creditors had rejected the company’s debt restructuring plans once again. A mutual fund called Franklin Resources wants additional equity in iHeartMedia, including parts of their outdoor billboard division called Clear Channel Outdoor Holdings to resolve the debt, which would leave the company’s principal owners—Bain Capital and Thomas H. Lee Partners—with only about 1% ownership. Bain Capital and Thomas H. Lee Partners purchased iHeartMedia (previously Clear Channel) for $26.7 billion in 2006, and have since struggled to recoup the massive debt, despite selling and spinning off many assets.
iHeartMedia has already made it clear the company does not expect to be “a going concern” in the coming year, with some experts surprised the company made it this far. At some point iHeartMedia will fail. The question is, how will radio look afterwards, who will end up with all of iHeartMedia’s radio stations and other assets, and how will this affect music in America, especially mainstream country music which specifically relies on the traditional radio model to release songs and promote touring artists.
Gina
December 1, 2017 @ 12:54 pm
Scary time. The Nashville Scene news yesterday and this today.
Bill Weiler
December 1, 2017 @ 2:13 pm
Oh no, oh dear, oh my, ……. oh well.
Ken
December 1, 2017 @ 3:03 pm
these bastards will never go away trust me, they’ll find a way to keep polluting country charts with the overplay of the same old bro country acts. Would be a dream if this stuff could disappear. Maybe country radio will be listenable again. Right now it’s at an all time low to me.
By the way Trig, I’ve read some interesting things among the comments of William Michael Morgan’s brand new music video on youtube: Apparently the new single Vinyl, that is not even charting on Mediabase, is #3 in Italy. #3 in the pop chart of an European country.
There is something wrong with country radio, trust me.
Jim
December 1, 2017 @ 3:03 pm
I hate to nitpick, but iHeartMedia didn’t make the “going concern” clear, their auditors did. You can all but guarantee iHeartMedia did absolutely everything they could to get the auditors to pull those words from the report. Those are the most serious words you’ll ever see in an audit report.
Dan Bowen
December 1, 2017 @ 3:55 pm
I admit I am old, but in my earlier days most radio stations were locally owned, or at least not part of a giant media conglomerate. I even worked as a DJ in college in Anderson, SC. I was also on the road a lot and enjoyed listing to the differences from town to town. They all had their own “personality,” some good, some terrible, but they were a part of Americana. Maybe going back to that would not be such a bad thing.
The Senator
December 4, 2017 @ 9:28 am
Yes, indeed. Preach it.
Sam Cody
December 1, 2017 @ 11:52 pm
Howl-la-looya!
Carter Burger
December 2, 2017 @ 6:57 am
The banks will refinance the debt. Or kicking the can down the road. Nothing will change.
scottinnj
December 2, 2017 @ 8:11 am
There are two types of bankruptcies (simplistically) – Chapter 11 where you reduce debt/other
obligations but continue in business and Chapter 7, where you go out of business and/or liquidate.
Most highly indebteded companies, like iHeart or, in a different space, Toys R Us, are the product of failed LBO. Someone paid too much, and they can’t pay their debt. But they are profitable before their interest payments. If they can reduce debt, they can reduce interest expense and generated positive cash flow which they can use to reinvest in the business.
If you exclude (for a minute) iHearts’ debt and interest, this is a highly profitable company. It will earn around $1.3bn of EBITDA (earnings before interest, tax, depreciation and amortization) of which about 70% is the radio segment, and 30% is the outdoor (billboard). The problem is they pay around $1.6bn of interest, so they bleed cash.
The lenders are working on who gets their loan paid and who doesn’t and owns the company. Its about slicing the pie. Per the numbers above if they simplistically cut the debt in half and cut the interest bill in half, then their interest bill is cut in half to $800 million, and they make enought to pay that with room to spare.
There other somewhat complicating factor in this is that iHeeart really has two separate businesses the radio and billboard. I’m a bit fuzzy on that but you might make an argument these two businesses don’t need to be owned by the same company, and different lenders may have diffferent collateral. So you might say this group of lenders gets the radio biz and that group gets the billboard business.
There are certainly cases where there are bad businesses, they go bankrupt and they liquidate e.g. Circuit City, Linens & Things, Borders, etc. There are companies that are OK, they just need to cut their debt. Cumulus is one Toys R Us will be one.
The above is a long winded way of saying that whatever losses some of the lenders will face, when iHeart gets to the other side of its debt restructuring, it (a) isn’t going to be forced to meaningfully change its business (aside from the possible separation of the outdoor business, and maybe it has a handful of radio stations it might shut in bankruptcy) and (b) instead of having a business that has no money to make investments, it will have the flexibility to make additional investments in the business. Having more firepower might be a good or bad thing, I don’t know.
Trigger
December 2, 2017 @ 9:15 am
The other factor specifically with iHeart is that about $8 billion of their debt comes due in full in 2018, meaning they can’t just pay the payments and interest even if they wanted or had the cash to. They must renegoitate. They have run out of time.
Jtrpdx
December 2, 2017 @ 8:28 pm
Thanks Scott. All accurate. As far as it relates to the 2019 8b balloon payment, that will simply be part of the renegotiation. Given that the underlying business is healthy absent the debt, giving lenders equity in the business in exchange for debt concessions is a real option.
DJ
December 2, 2017 @ 7:38 pm
I looked up the guy in charge of iHeart. It looks to me like he has too many irons in the fire, he does at least have a connection to music though.
Woogeroo
December 3, 2017 @ 4:15 am
Well they did it to themselves. Hard to feel bad for them. They’ve been ruining radio in all formats for years and years.