US Bankruptcy Judge Shelley Chapman has set January 9th for a hearing to set the bidding procedures for a sale of Inner City Media Corporation (ICMC). The secured creditors who forced the radio group owner into bankruptcy court in August will likely become the new owners unless someone comes forward to top their “stalking horse” bid.
With relations clearly improved since August between Inner City and the secured creditors group which owns the senior debt – Ron Burkle’s Yucaipa Companies, Fortress Credit Lending and Drawbridge Special Opportunities Fund (which is also a Fortress fund) – the company is moving toward an orderly emergence from Chapter 11 reorganization. If all goes according to plan, the auction will take place February 16th and the winner will be named February 17th.
In a recent filing, Inner City told the court that it had explored various options, including a sale of only some of its assets. But after “extensive negotiations,” ICMC and the senior debt owners determined that the best course was a sale of the entire company because, among other things, it would reduce the tax basis on the assets post-sale and provide the most efficient way to allow the senior lenders to realize a return on their collateral.
The filing by ICMC said it was unable to come to terms with the senior debt owners on a reorganization plan, but did agree that the senior creditors would organize a new company to make a stalking horse bid for the assets. The stalking horse company has also agreed to pay Inner City Broadcasting Corporation, which is not part of the bankruptcy, $2.75 million for various copyrights, trademarks and other intellectual property which are not part of the ICMC assets.
Once the stalking horse bid is in place, other bids will be due February 13th, with the auction February 16th, the winner to be named February 17th and a court hearing to approve the sale on February 21st.
While the stalking horse bid will cover all of the 17 radio stations, ICMC in consultation with the senior creditors may accept bids for KBLX-FM San Francisco alone. Inner City’s largest stations are WLIB-AM and WBLS-FM New York City. It also owns two AMs in San Francisco, plus stations in Jackson, MS and Columbia, SC.
As is common in bankruptcy court auctions, the senior creditors will be permitted to use a partial “credit bid” based on the senior debt owed as part of the stalking horse bid. That makes it likely that the senior creditors, via their stalking horse company, will emerge as the new owners, but they could be outbid if someone else wants the radio properties badly enough.
Yucaipa is already involved financially with Magic Johnson in owning three Phoenix stations, so it is likely that he will also have a role in the stalking horse company, although he is not mentioned in the court filings.
The creditors have also come to terms with key Inner City executives, so “the Stalking Horse Agreement requires entry of (i) a 5-year consulting agreement with Mr. Pierre Sutton with a salary of $675,000 per year and health benefits, and (ii) a 3-year consulting agreement with Ms. Keisha Sutton-James with a salary of $200,000 per year and health benefits.”
RBR-TVBR observation: Despite the initial acrimony leading to the creditors forcing ICMC into bankruptcy the Inner City stations have continued to operate normally and have generated plenty of cash to keep their operations funded. As previously noted, the Chapter 11 proceeding has been pretty much a non-event for unsecured creditors, who expect to receive every penny they are due. The coming change of ownership may not change much for the stations as far as employees and listeners are concerned.