A look at Citadel’s new owners


RBR-TVBR exclusive

Who will own Citadel Broadcasting once it emerges from Chapter 11? Forstmann Little & Co., which took the company private for $2 billion in 2001 and then public in 2003 has seen its remaining 29% stake wiped out, along with all other public shareholders. So, RBR-TVBR has examined the Chapter 11 reorganization plan to see who will wind up as the new owners.

Under terms of the reorganization, which has already been agreed to by 60% of the senior lenders, approximately $1.4 billion of debt would be converted into nearly all of the equity of the New Citadel, with 7.5-10% to be reserved for incentive stock programs for the company’s directors and top management. The board of directors, by the way, will consist of CEO Farid Suleman and six other directors to be selected by the lenders using a recruiting firm.

Far and away the biggest creditor is JPMorgan Chase Bank. It is the agent for the senior credit facility of just over two billion, 75 million dollars. But that doesn’t mean that it holds all of that debt. It appears that many of the banks in the original deal sold off their shares of the loan long ago. Few are signatories to the reorganization, although JPMorgan Chase itself is. Since it is also involved in a series of interest rate swaps by Citadel, which the court filing says will end up being worth significantly less than the current listed value of $970 million, JPMorgan Chase left blank the amount it is owed in signing onto the reorg plan.

Most of the lenders who submitted agreements are actually investment funds – mostly ones created to invest in CLOs – collateralized loan obligations. Most presumably bought in at prices significantly below the face value of the Citadel loans they now hold.

Various funds of Ares Management are in for a face value of $51.8 million. Ares is an affiliate of Leon Black’s Apollo Management.

Two CIT Group entities are in for $51 million, Deutsche Bank units for over $65.8 million, GE Capital and GE Business Financial Services for nearly $125 million and ING Capital/ING funds for over $67.8 million. The Cayman branch of Credit Suisse holds just over $13.5 million.

Various funds managed by Babson Capital Management listed over $17 million face value in Citadel loans they hold. Baltic Funding has just over $18.2 million.

Here’s an interesting one. Over $129 million face value of Citadel loans is held by various funds of Sankaty Advisors. Who is Sankaty Advisors? It is the credit affiliate of Bain Capital, one of the principal owners of Clear Channel Communications. Small world, ain’t it?

Texas Pacific Group has only one of its funds invested in Citadel debt, but it’s a big investment: $104.9 million.

Cayman Capital Investors is a big holder, with over $72 million held by two of its funds. A KKR (Kohlberg Kravis Roberts) Financial CLO holds $24.5 million.

Blue Shield of California is in for $3 million and the Illinois State Board of Investment for $1 million.

The list goes on and on, mostly with CLOs you’ve never heard of, unless you happen to be an extremely high net worth person who’s able to put money into such exotic investment pools.

When it comes to handing out stock in the New Citadel, the lenders will be able to take voting Class A shares, non-voting Class B (convertible to Class A when sold) or special warrants to buy Class A shares. Those special warrants will allow foreign entities to hold onto their financial interest without having New Citadel run afoul of the FCC’s foreign ownership limits. Also, no single shareholder is going to be allowed to receive more than 4.99% of the Class A shares issued, so many of the largest debt holders will get a lot of their stake in Class B shares.

The term sheet states that New Citadel will seek to have its Class A stock listed on Nasdaq or the NYSE as soon as “reasonably practicable.” So, at some point, the lenders, many of whom never wanted to become shareholders of Citadel in the first place, will be able to sell their shares to the public via Wall Street.

RBR-TVBR observation: With that 4.99% limit on any voting stake, Citadel will essentially be owned by no one. So long as Farid Suleman manages to get along with the other six directors, he’s essentially entrenched as CEO for life.
© 2009 Radio Business Report, Inc. All rights reserved.

RBR-TVBR note: Further information on Citadel review this report: ‘Inside the Citadel bankruptcy filing’