Why Did Two SBS Board Members Suddenly Step Down?

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On Aug. 17, Alan B. Miller and Gary B. Stone notified Spanish Broadcasting System of their resignation as members of the Miami-based multimedia company’s Board of Directors. SBS and the Board thanked Miller and Stone for their three years of service. But, why exit now? Miller offered a blunt one-sentence reason via e-mail to several board members. Stone didn’t give a reason, so we contacted him.


Stone had no comment, responding to RBR+TVBR’s inquiries via e-mail on Thursday afternoon.

However, it is more than likely that Stone feels the same way Miller does. In electronic correspondence sent following the Aug. 17 Closing Bell on Wall Street, Miller notified SBS Chairman/CEO Raul Alarcon Jr.; Sr. EVP/CFO Joe Garcia; and EVP/General Counsel Richard D. Lara of his immediate departure from the board.

He also sent the e-mail to five board members —  including C-Com Group co-Chairman Manuel E. Machado; Washington Economics Group (WEG) founder Tony Villamil, the former U.S. Undersecretary of Commerce for Economic Affairs appointed by President George H.W. Bush; and 18-year SBS director Jason Shrinsky, a retired partner from the law firm Kaye Scholer LLP.


In the e-mail, Miller states:

Dear Raul, I have decided to resign from the Board of Directors of SBS because my advice to SBS on the restructuring of its capital structure has been rejected. Please find my resignation letter attached to this email. Alan


 

The e-mail was disclosed in an SEC filing made late Wednesday by SBS; the letter was not included in the filing.

Contacted by e-mail by RBR+TVBR for additional comment, Miller declined, saying, “I said it all in my note that was published.”

Miller and Stone in 2014 were elected to the Board by the holders of SBS’s 10¾% Series B Cumulative Exchangeable Redeemable Preferred Stock due to the existence of a “Voting Rights Triggering Event” under the Certificate of Designations.

The holders of the Series B Preferred Stock have the right to elect two new directors to the Board to fill the seats vacated by Miller and Stone for their unexpired terms at a special meeting of the holders of the Series B Preferred Stock.

The two vacancies on the Board will remain unfilled until such time as the holders of the Series B Preferred Stock appoint two new directors.

The restructuring of SBS’s capital structure — and the company’s unwillingness, according to Miller, to heed his advice on the matter — continues to be a significant impediment to the publicly traded company’s long-term financial health.

With its shares at $1.10 in noon-hour trading on Thursday, investors seem to have set a new plateau after “SBSAA” crumbled to 40 cents in late April. On the first trading day of 2017, SBS stock was at $3.18, but falling … ahead of a delisting from Nasdaq and shift to the OTCQX Best Market.

By April 25, things looked bleak for SBS: Moody’s Investors Service downgraded SBS’s probability of default rating (PDR) to D-PD from Caa3-PD, a move precipitated by the company’s announcement that there was an event of default under the company’s note indenture following note maturity on April 15.

The company announced the default in a 10K filing with the SEC made on April 20. In the filing, SBS noted that it has engaged financial and legal advisors in evaluating its recapitalization options. In addition, SBS has initiated conversations with representatives of the noteholders and holders of its preferred stock regarding the recapitalization.

It is now apparent that the company is moving in a direction Miller and Stone are strongly opposed to.

Meanwhile, Moody’s April concern could be rising in importance once again for SBS’s executives, remaining board members and jittery investors.

“We view these actions as increasing the likelihood of a bankruptcy filing, with reduced expected recovery of proceeds to the noteholders,” Moody’s said.

SBS owns and operates 17 radio stations in six of the eight largest Hispanic markets in the U.S., including New York and Los Angeles. The company also operates AIRE Radio Networks, a national radio platform, and MegaTV, a television operation with affiliates in the continental U.S. and Puerto Rico that includes owned-and-operated television stations in Miami and Houston.

Net revenue for 2016 totaled $145 million.

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Spanish Broadcasting System released its Q2 2017 results following Monday’s Closing Bell on Wall Street, and in doing so revealed a fact that could be vexing to Chairman/CEO Raúl Alarcón Jr.: SBS’s TV division saw local sales decreases that led to a 24% drop in segment net revenue. If not for its Mega TV operation, SBS would have seen a flat Q2, driven by special events tied to its radio stations.

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