Citadel Broadcasting prepares for Chapter 11

For the first time, Citadel Broadcasting has stated in an SEC filing that it may have to file for Chapter 11 bankruptcy protection from creditors as soon as January 2010. The company reported that Q3 revenues fell 14.1% to 183.8 million.

Net revenues for Citadel’s radio station operations were down 9.9% to $155.8 million. The company said its large markets generally performed better than its medium and small markets. Segment operating income fell 12.6% to $58.4 million. The revenue drop was partly offset by an 8% reduction in costs.

The big drop came in the radio network business, now called Citadel Media. Net revenues plunged 31.5% to $29.4 million. The loss of Paul Harvey, who died, and Sean Hannity, who took his show elsewhere, accounted for $8 million of the $13.5 million decline. Segment operating income dropped 92.3% to $500K from $6.5 million a year earlier. The drop in revenue was slightly offset by an 18% reduction in costs.

Citadel has been warning of covenant compliance problems ahead since it reworked its credit agreement with its lenders back in late March. Facing a requirement that it have $150 million of available cash as of January 15, 2010, Citadel has admitted in several SEC filings that it does not expect to be able to meet that requirement and will likely face a financial restructuring which would dilute or wipe out the equity of current shareholders.

Until now, though, Citadel had avoided mentioning Chapter 11 as a likely scenario. But in its 10-Q filing for Q3, the company made this disclosure:

“Based on the current economic conditions and capital markets, the Company does not expect to be able to meet its covenants under the Senior Credit and Term Facility as of January 15, 2010. If the Company fails to do so, the Company will be in default under its Senior Credit and Term Facility and under the terms of its convertible subordinated notes. Because of the Company’s likely inability to comply with these covenants, the amounts outstanding under the Senior Credit and Term Facility and the convertible subordinated notes are classified as current liabilities as of September 30, 2009. In May 2009, the Company hired a financial advisor to assist in the evaluation of the Company’s financial options, including a possible refinancing and restructuring of its capital structure and debt. The Company is currently in discussions with its lenders regarding this matter, including the possibility of seeking relief through a Chapter 11 filing under the U.S. Bankruptcy Code; however, there can be no assurance that any definitive agreement shall be reached. As of September 30, 2009, discussions with lenders were ongoing, and they remain ongoing as of the filing of the report in which these financial statements appear. Should the Company default, however, its indebtedness may be accelerated, the Company would not be able to satisfy these obligations, and the Company would likely need to seek relief through a Chapter 11 filing under the U.S. Bankruptcy Code."

RBR-TVBR observation: Hardly surprising, but it’s a shame that so many good people down the line have to suffer for the bad decisions of management at the top.

Our fear is that a bankruptcy filing may further entrench Farid Suleman as CEO. The creditors may be just as clueless about radio as Ted Forstmann was when he hired Suleman and leave him in place as captain until he runs this ship aground a second time.