A Boston-based investment firm appears to have ironed out its differences with the entity representing iHeartMedia‘s legacy noteholders — a sign that iHeart’s release from debtor-in-possession status by a Houston-based bankruptcy court is chugging along toward a January 2019 resolution.
Abrams Capital, L.P., a Boston-based investment firm founded by David Abrams, is now the owner of a majority of iHeart’s Class A common stock.
According to a SEC filing made late Monday (12/17), Abrams is obtaining a total of 16,761,917 shares of iHeart, priced as of Monday’s Closing Bell and at Noon Tuesday at $0.45 per share.
As such, it is an acquisition of iHeart shares valued at $7.55 million.
Limited details were given. While it is not clear how nearly 7 million of those shares will be obtained, it was disclosed that “Abrams Capital Partners II” on Dec. 14 acquired 9,950,510 at a bargain price of $1.6 million. The shares are being transferred by Highfields Capital Management.
That’s the Jonathon Jacobson-led entity that in October 2018 announced that it was returning billions of dollars in client money and converting into a family office, winding down a $12.1 billion hedge fund. “Middling performance” over the last few years pounded the hedge fund.
The Highfields acquisition represents approximately 18.4% of the voting power of iHeart’s capital stock.
All together, Abrams Capital will hold 53.1% of “IHRTQ,” a Pink sheet OTC stock. Companies trading in this market are considered to be some of the riskiest for investors, with extreme financial challenges.
That aptly described iHeart prior to declaring Chapter 11 bankruptcy and seeking to restructure through the elimination of nearly $15 billion in debt. A plan was supposed to have been presented to Marvin Isgur, the U.S. bankruptcy judge overseeing iHeart’s case, on Dec. 11. This was pushed back for reasons largely tied to WSFS Bank, and Abrams, in addition to Mario Gabelli and his GAMCO entity.
This put in motion an effort to gain approval of a settlement between GAMCO and iHeart tied to Clear Channel Outdoor, an entity that will be spun off from iHeart and is not a part of the Chapter 11 proceedings.
“The Settlement described herein and incorporated into the Plan is critical to obtaining CCOH’s support for the Plan,” the parties said in the emergency petition.
At the same time, the Norfolk County Retirement System voiced its need for a settlement, given its objections to iHeart’s plan.
With Isgur ready to review and rule, iHeart preempted the judge by entering into a settlement agreement with GAMCO and with Norfolk County Retirement System late Sunday, ahead of a Dec. 17 court hearing that would have seen Isgur’s input on the matter.
The 8-K filing made Monday evening states:
The Settlement Agreement contemplates that upon the separation of CCOH from iHeartMedia, (i) the cash sweep arrangement under the existing corporate services agreement (the “Corporate Services Agreement”) between CCOH and iHeartCommunications will terminate, (ii) any agreements or licenses requiring royalty payments to iHeartMedia and its debtor affiliates by CCOH for trademarks or other intellectual property will terminate and (iii) a new transition services agreement will supersede and replace the existing Corporate Services Agreement. The Debtors agreed to waive (i) the set-off for the value of the intellectual property transferred, including royalties and (ii) the repayment of the post-petition intercompany balance outstanding in favor of the Debtors as of December 31, 2018. In addition, the Settlement Agreement provides that after the Separation, (i) iHeartCommunications will provide an unsecured revolving line of credit in an aggregate amount not to exceed $200 million to CCOH (or its successor) for a period of no more than three years following the effective date of the iHeartMedia Plan of Reorganization (the “iHeartCommunications Line of Credit”), (ii) iHeartMedia will indemnify CCOH for 50% of certain tax liabilities imposed on CCOH in connection with the Separation on or prior to the third anniversary of the Separation in excess of $5.0 million, with iHeartMedia’s aggregate liability limited to $15.0 million, and (iii) iHeartMedia will reimburse CCOH for one-third of potential costs relating to certain leases between CCOH and third parties in excess of $10.0 million of such costs up to the first $35.0 million of such costs such that iHeartMedia will not bear more than $8.33 million of such costs. The parties agreed that CCOH will recover 14.4% in cash on its allowed claim of $1,031,721,306 under the intercompany note owed by iHeartCommunications to CCOH, and to mutual releases, including a release of all claims that have been asserted, could have been asserted or ever could be asserted with respect to iHeartMedia’s Chapter 11 cases and the Delaware Actions.
As of June 29, 2017, GAMCO held 4.61% ownership of Clear Channel Outdoor, valued at $10.7 million based on Oct. 12 trading. GAMCO is the seventh-largest investor in the company, while Abrams Capital Management is No. 3. Abrams’ stake was just under 7.1%.
Bain Capital, Thomas H. Lee Partners and smaller shareholder Highfields, together with Abrams Capital, hold in excess of $1 billion of iHeartMedia’s senior debt.
As such, the GAMCO settlement and Highfields share sale indicate that iHeart’s engines are racing toward a largely unimpeded ejection from Chapter 11 bankruptcy protection.