Citadel Broadcasting Corporation has asked the judge overseeing its Chapter 11 bankruptcy proceeding to void stock purchases by Aurelius Capital Management and other entities associated with its Senior Managing Member, Mark Brodsky. Citadel says the stock purchases violate the bankruptcy court’s order that bars anyone from becoming a new “substantial shareholder” of Citadel without first notifying the court.
Aurelius disclosed in an SEC filing that since late March it has acquired 16.7 million shares of Citadel’s common stock for a total of $1,213,477.13. That’s an average of just under 7.3 cents per share.
Aurelius does not intend to be a passive investor. “To the extent permitted by applicable law, rules and regulations, the Reporting Persons [Aurelius] may seek to influence the outcome of the Bankruptcy Proceedings, including, among other things, through (i) direct and/or indirect communications with participants in the Bankruptcy Proceedings and (ii) direct and/or indirect communications with other persons, including other stockholders or creditors of the Issuer [Citadel]. Aurelius Capital Management, on behalf of the Aurelius Funds, may become actively involved in the Bankruptcy Proceedings, with the goal of protecting and maximizing the value of the Aurelius Funds’ respective investments,” the investment group said in its report to the SEC.
Citadel, though, says the interim order adopted by the US Bankruptcy Court in December and a final order adopted April 12th requires prior notification to the court by anyone planning to become a “substantial shareholder” and defines that as any entity with beneficial ownership of at least 11.96 million shares of common stock.
With 16.7 million shares, Aurelius has certainly cleared that hurdle, so Citadel has asked the bankruptcy court to declare the stock purchases “invalid and void.”
“To effectuate the unwind of the purchases of Citadel’s common stock that were made by Aurelius, Aurelius should be required to sell all of the Aurelius Shares on the open market promptly, and in any event, within 15 trading days,” Citadel said in its motion to the court. Should Aurelius make any profit on the sales; the motion would require it to be donated to a court-approved charity.
When we last checked, US Bankruptcy Judge Burton Lifland had not acted on the motion by Citadel.
RBR-TVBR observation: The recent trading activity in Citadel’s stock – which has a theoretical value of zero if the Chapter 11 reorganization plan is approved – has certainly driven the price sky-high. It’s gone from three cents the day before Aurelius began buying to 33 cents at Monday’s closing bell. (Does the OTC Bulletin Board have a bell?)