Largest US radio company iHeartMedia files for bankruptcy

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IHeartMedia Inc filed for Chapter 11 bankruptcy on Thursday as the largest US radio station owner reached an agreement with creditors to more than halve its 20 billion US dollars in debt.

The company said the agreement it ‍reached with holders of more than 10 billion US dollars of its outstanding debt would restructure its balance sheet by transferring 94 percent of the stock in the reorganized company to its lenders.

IHeartMedia has struggled with debt that was taken on to finance a 17.9-billion-US-dollar leveraged buyout, or LBO, in 2008 of what was then Clear Channel Communications Inc. That deal led by Bain Capital LLC and Thomas H. Lee Partners LP closed just as a financial crisis began to undermine the US economy.

In the years that followed, the operator of 849 radio stations has faced intensifying competition for advertisers and listeners from internet platforms such as music streaming services.

“The LBO put this massive debt on the balance sheet that the company was supposed to grow into,” a lawyer for iHeartMedia told US Bankruptcy Judge Marvin Isgur at a hearing in Houston on Thursday. “We’re here to right-size the balance sheet.”

The company traces its roots to the 1972 purchase of KEEZ-FM in San Antonio, Texas, where it is currently headquartered. It said it would fund the business and bankruptcy process from cash on hand and cash generated from operations.

It said in a statement it was seeking to maintain business as usual during the bankruptcy, and to “uphold its commitments” to its staff. It employs 12,400 people, according to court records.

The filing comes less than four months after Cumulus Media Inc, which operates 445 US radio stations, filed for Chapter 11.

DEBT-CUTTING DEAL

The iHeartMedia billboard is seen atop a building in the Bronx in New York, US, March 15, 2018. /Reuters Photo

IHeartMedia had 3.58 billion US dollars in revenue in 2017 and reaches 271 million radio listeners, which the company says gives it a wider reach than Alphabet Inc’s Google. The company also sells advertising on digital platforms, at live concerts and on syndicated programs featuring personalities such as Rush Limbaugh and “American Idol” host Ryan Seacrest.

However, the company spent 1.4 billion US dollars on interest payments last year and has more than 8 billion US dollars in debt maturing by the end of 2019.

The company’s lawyers told the court iHeartMedia was on the cusp of having enough support from creditors to impose its plan on hold-outs.

Under the company’s debt-cutting deal, holders of secured loans and secured notes, who are owed nearly 13 billion US dollars, agreed to accept about 5.6 billion US dollars in new debt and 94 percent of the equity in a reorganized iHeartMedia, according to court documents.

These creditors also will receive iHeartMedia’s 89.5 percent stake in Clear Channel Outdoor Holdings Inc, the world’s largest billboard company, which did not file for bankruptcy.

IHeartMedia also proposed that junior debt holders, who are owed more than 2 billion US dollars, will receive their pro rata share of 5 percent of the equity in the reorganized company and 200 million US dollars in new secured notes.

Existing shareholders would receive 1 percent of the stock in the reorganized company, according to court documents.

IHeartMedia faces a legal challenge from a group, led by investment fund Angelo, Gordon & Co, which holds 190 million US dollars of junior debt, according to the company.

Their lawyer said at Thursday’s hearing they plan to file a lawsuit to challenge the contention that they are low-priority unsecured creditors, and Isgur said he wanted a hearing on that dispute before April.

IHeartMedia has drawn interest from John Malone’s Liberty Media Corp, which proposed on Feb. 26 a deal to buy a 40-percent stake in a restructured iHeartMedia for 1.16 billion US dollars. The deal would unite iHeartMedia with Liberty’s Sirius XM Holdings Inc satellite radio service.

Source(s): Reuters