Deconsolidation Right Around the Corner – Don't Believe It!


Coming into 2009, a great many media pros including brokers, attorneys and many of us who cashed out of radio a decade or more ago predicted a tsunami of bankruptcies due to the massive hangover of LBO debt (like the Bain/TH Lee Clear Channel deal).  That belief coupled with a deteriorating economy and greatly reduced ad expenditures is fueling the theory that a massive sell-off of traditional media assets (like radio stations) is about to commence.  Don’t believe it!
True bankruptcies among PE backed companies are up over last year (on pace to double, in fact), but the figure is nowhere close to “tsunami” proportions.  And while there have been a few notable deals announced (including the reemergence of radio’s “Alpha” operator, former Citadel chief Larry Wilson), the market for senior financing has all but atrophied.
Traditionally when a PE or venture backed company hit the skids financially, there were three pragmatic exit options:
1. Refinance existing debt
2. Go public
3. Find a buyer willing to pay more than you did.
Well, it’s like old Monte Hall from “Let’s Make a Deal” closed up shop and padlocked all three doors.
But in the process of analyzing viable options, radio operators who face the prospect of default should consider this.  Your interests as an entrepreneur may actually be more closely aligned with your senior lender than you might imagine.
At this point in your fiscal year (September), you should have a realistic estimate of whether you are going to hit your number or not.  Let’s say the odds suggest you’ll be tripping up against some covenants once you report your full year results.  The time to start positioning yourself to make a good deal with your senior lender is now.
Chances are your bank is facing some liquidity issues of its own.  Commercial loan delinquencies are up across the board.  A non-performing loan is a drag on your bank’s balance sheet.  It is in your senior lender’s best interest to explore every means possible to keep your note classified as performing.
That’s where the “Amend and Extend” work-out approach can become a collaborative affair.
Resist the temptation to contact a media broker or a bankruptcy attorney – at least for awhile.  Brokers, attorneys and bankruptcy court judges have only one job:  To sell assets and pay off your creditors.  You basically lose control of the process, but it doesn’t have to “work-out” that way.
Priority number one should be to get your 2010 operating budget together.  Determine how much free cash flow your company will generate and you will know how much you can afford to service debt going forward.
Next review the terms of your loan agreement with an advisor who thinks like a senior lender.  Once you know your options, you will be positioned to approach your senior lender with an “Amend and Extend” proposal on your terms.  You earn a living as a problem solver for advertisers – use those same skills to negotiate new financing terms designed to address both the needs of your business and your banker.
–Paul W Robinson, Palatine Portfolio Advisors, Baltimore, MD  
Voice:  (410) 385-5606
Cell:     (202) 329-5994
e-mail:    [email protected]