iHeart ‘Legacy Noteholders’ Get Adversary Proceeding

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Has iHeartMedia staged a surreptitious “fraudulent and otherwise wrongful” plan to shrink the dollars they believe are owed to them?


That what the company’s legacy noteholders claim is the biggest problem with the media company’s Chapter 11 restructuring plan it has submitted to a Texas bankruptcy court, and on Wednesday moved forward with an adversary proceeding in the case.

The plaintiff is Wilmington Savings Fund Society (FSB), in its capacity as the successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027.

It’s very forthcoming in its role with iHeart, formerly Clear Channel Communications. In a 28-page filing made Wednesday night with the Texas bankruptcy court considering iHeartMedia’s petition, Wilmington and its legal counsel explained that it is the successor indenture trustee for the so-called “Legacy Notes” — “the only class of debt in the Debtors’ capital structure that was issued prior to the disastrous 2008 leveraged buyout, which over-levered iHeart and ultimately led to its bankruptcy.”

When a solvent iHeart issued the Legacy Notes in 1997, the holders of these notes agreed to be unsecured — “but only subject to a clear right, spelled out in the indenture, to be equally and ratably treated with any future secured debt.”

The Legacy Noteholders believe iHeart is seeking to “wrongfully deprive” them “of the benefit of that bargain,” hence the adversary proceeding.

It assailed iHeart for making “secret and deceptive transactions” to benefit of holders of its Priority Guarantee Notes, “which were both hidden from and denied to the Legacy
Noteholders,” Wilmington claims.

Further accusations against iHeart were made, all regarding “secretive” and impermissible actions involving the PGNs.

Among the key issues noted:

  • Due to Defendants’ false and misleading statements and secret granting of the Hidden Encumbrances, Plaintiff only recently learned of the Principal Properties Security
    Agreements, and not from Defendants.
  • Plaintiff first became aware of one of the Principal Properties Security Agreements through the Ad Hoc Group of Legacy Noteholders, who themselves only learned of
    its existence in November 2017 when counsel for a group of PGN Holders sent them the
    February 2015 Principal Properties Security Agreement in an effort to convince them that their rights under the Equal and Ratable Clause would not protect them in bankruptcy.
  • Immediately upon confirming the existence of the Hidden Encumbrances, the Ad Hoc Group of Legacy Noteholders demanded relief including the granting of the Equal and Ratable Mortgages. It was not until February 23, 2018 that Defendants informed the Ad Hoc Group of Legacy Noteholders that they would not do so.

A New York Action made on Feb. 26 related to this matter has been automatically stayed pursuant to section 362 of the bankruptcy Code.

Co-counsel representing Wilmington are attorneys from Andrews Kurth Kenyon LLP, White & Case LLP, and Pryor & Cashman LLP.