After years of rumblings regarding the fate of two radio broadcasting companies some media observers have labeled “The Debt-Bomb Duo,” the heavy leverage situation at Cumulus Media led the company on Nov. 29, 2017 to file for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
This move came after Cumulus, the nation’s No. 2 owner of AMs and FMs by station count, on Nov. 1, 2017 revealed in a Securities & Exchange Commission filing that a scheduled interest payment of roughly $23.6 million on its 7.75% Senior Notes due 2019 — planned for payment on that day — wasn’t paid.
Is iHeartMedia walking down the same path as Cumulus?
The nation’s No. 1 radio broadcasting company’s iHeartCommunications arm has elected not to make the cash interest payment of $106 million due today (2/1) with respect to its outstanding Senior Notes due 2021.
That’s not to say iHeart is defaulting on the payment to holders of its 14% senior unsecured notes due in three years.
The company has a 30-day grace period to make the interest payment before an event of default is triggered.
iHeart did not elaborate on its decision, stating only that “active discussions continue among its lenders, noteholders, and financial sponsors regarding a comprehensive debt restructuring.”
As far as not paying the $106 million today, iHeart’s Board of Directors decided not to do “in connection with ongoing efforts to proactively and comprehensively address the company’s capital structure.”
It’s been a difficult 11 months for iHeart and its lenders, with a minuscule level of participation in its Term Loan Offers, Exchange Offers and Consent Solicitations receiving deadline extension after deadline extension since March 2017.
However, a turn came in November, when a debt-for-equity proposal awarding its lenders 87.5% equity in a recapitalized iHeart and 87.5% of iHeart’s 89.5% direct ownership in Clear Channel Outdoor was revealed in an SEC filing.
That didn’t satisfy lenders, who want an option for a pre-packaged Chapter 11 filing.
On Nov. 21, iHeart drafted a proposal for its lenders that, in part, addresses the 14% Notes Due 2021. The company suggested $250 million in junior debt for these notes as part of a nixed plan giving lenders 12.5% equity in a recapitalized iHeart and 12.5% of iHeart’s ownership in Clear Channel Outdoor.
The counter proposal from lenders seeks 2% equity in recapitalized iHeart for the 14% Notes due 2021, plus 10% Warrants struck at equity value of $6.5 billion (par plus accrued interest) — among other demands.
Most notably, the lender’s counter proposal calls for 95.3% equity in recapitalized iHeart and all of iHeart’s ownership stake in Clear Channel Outdoor.
As stated in a Nov. 30 SEC filing outlining the details, iHeartCommunications VP/Associate General Counsel Lauren Dean states, “No agreement has been reached with respect to the above discussions and discussions remain ongoing. There can be no assurance that any agreement will be reached.”
With its decision to skip the $106 million interest payment, a deal may be unreachable, with iHeart perhaps drafting documents that — like Cumulus — will send the company on its next chapter.