Employees of Interep were notified Sunday to report for work today. Federal bankruptcy trustee Kenneth Silverman will keep the rep firm operating for at least one more week as he assesses options to maximize the value of the company. The latest move comes after a federal bankruptcy judge on Friday granted an emergency motion by Interep to convert the rep company’s Chapter 11 proceeding to Chapter 7, liquidation rather than reorganization.
Back when Interep filed the voluntary Chapter 11 petition in March, it looked like the company had charted a path which would guarantee its survival. CEO David Kennedy told RBR/TVBR that under the proposed reorganization plan, Interep’s bond holders would become major shareholders and also provide Interep with new financing for future growth – with the company expected to exit Chapter 11 reorganization in about 90 days. That 90 days has long since passed and the rebirth anticipated back in March never came to be.
Kennedy told Interep managers in an emotional conference call on Friday that the company had been unable to put together a restructuring deal, had converted its bankruptcy case to Chapter 7 and was facing a potential shutdown. At that time it was not known if employees would have jobs to report to today. As of Sunday, though, employees were told to report to work on Monday. Business will continue as usual this week, with spot and unwired advertising to be sold and placed. Silverman, meanwhile, will be getting his arms around the national rep business and deciding whether the prospects for Interep justify keeping the doors open next week and beyond.
You could say that the decline of Interep, once the largest radio rep group, began when rival Katz Media Group was acquired by Chancellor Media in 1997, two years before Chancellor was merged with Clear Channel Communications, making Katz the national rep for what was and is far and away the nation’s largest radio group owner. Katz cut deal after deal to entice major groups away from Interep.
As a standalone company, Interep saw its revenues erode and stock price deteriorate as it drew closer to a July 1, 2008 deadline to refinance $99 million in bond debt. Those bonds, selling at a deep discount, were largely snapped up by Oaktree Capital Management, which in April 2005 began pressuring Interep to restructure and bring in new blood to succeed founder Ralph Guild as CEO. At one point, Oaktree offered to buy out all shareholders for $1.10 per share, a premium to the depressed trading price, but Interep’s board rejected that as inadequate.
By the time Guild stepped aside and David Kennedy, former CEO of Susquehanna Media, was recruited to head the rep company in February 2007, Interep faced major challenges. From the beginning, Kennedy said fixing the capital structure was a top priority. But he also had to deal with continuing client defections. To name just a few, Cumulus and Citadel switched to Katz after public airings of their discontent, while others such as Emmis and Radio One made the switch more quietly. Interep had expanded for the first time into television, repping Azteca America affiliates and a number of independent Hispanic stations, but that new business was hardly enough to counterbalance client losses on the radio side.
According to the client roster on Interep’s website, its remaining major radio group clients are CBS Radio, Entercom, Spanish Broadcasting System and Beasley Broadcast Group, along with some other companies with major market properties, such as Inner City, Jerry Lee’s WBEB-FM Philadelphia, Lincoln Financial Media, Buckley Radio, Howard University’s WHUR-FM Washington, DC, Hearst-Argyle’s WBAL-AM & WIYY-FM Baltimore, Radio Disney and ESPN. Other client groups listed are mainly in medium and smaller markets. As you would expect, Kennedy has been talking to those group heads and all of the contracts remain in place so long as the trustee keeps Interep operating.
Although capital was tight and the US economy somewhat weakening when Interep filed its Chapter 11 petition in March to reorganize under bankruptcy court protection, no one knew how much worse the economy and ad market would become in the months to follow. There was optimism then that the company was viable, but just needed to straighten out its balance sheet. Oaktree Capital and another major bondholder, Silver Point Capital, agreed to provide $25 million in debtor-in-possession financing to keep Interep operating. RBR/TVBR learned that in the months which followed, that team of bondholders and at least one other potential buyer tried to put together a deal to acquire Interep and keep it operating. But the combination of client losses, a deteriorating ad market and a severe pullback in the credit markets proved to be a perfect storm that kept any deal from getting done.
After several loan extensions, that $25 million came due last week and Interep threw in the towel. The role of the bankruptcy trustee now is to preserve the maximum value of the bankruptcy estate to pay the creditors. Since radio representation is largely a people business, few assets remain to be liquidated if Silverman decides that the company cannot continue to operate. The emergency petition that Interep filed to convert to Chapter 7 noted that there may be some value in subletting its real estate leases. But it may not reach that point. Silverman is said to be in discussions already for potential sales of all or part of Interep.
Meanwhile, CBS Radio made a filing with the bankruptcy court on Friday said it had learned on Thursday that instead of holding in trust, as required by its contract for payments due CBS from buyers of airtime via Interep, that “Interep may have been using the Trust Funds without CBS’s consent.” CBS said it had attempted to communicate with Interep’s lawyers, but had not received a response, so it filed notice with the court. CBS wanted an order requiring Interep to abide by the contract terms and provide an immediate accounting of CBS’s funds. RBR/TVBR has learned that another filing is likely to be made today resolving the situation.
RBR/TVBR observation: Decades of consolidation which had reduced an array of national radio reps to only two major companies is now on the verge of possibly dropping to one – Katz Media, owned by Clear Channel. We asked some Interep clients what they plan to do, but it seems most were unprepared for Friday’s events. Now, at least, they know that they still have a national rep this week.
“We are looking at alternative national sales representation strategies and will have an announcement soon,” said a statement Friday from CBS Radio.
“We are very sorry to see this happen to Interep. Having said that, we are extremely excited about where we are going and have plans in place to create an even stronger national sales effort. We will be making some announcements within the next week. In the meantime, we plan to work closely with our customers to ensure that nothing falls through the cracks,” said Entercom in a statement to RBR/TVBR.
Beasley Broadcast Group President Bruce Beasley said Friday he did not know yet what his company would to about national representation.
Three Eagles Communications CEO Rolland Johnson said he was “Disappointed that they failed, because of the excellent people they had, and disappointed that they didn’t give clients any indication. I suppose it speaks to the lack of loyalty which permeates society today.” His company was already split between Interep and Katz, so he is hopeful that Katz will become even stronger by picking up some of the good people if they’re let go from Interep – “because that is the most important thing in this business today and for the future — feet on the street!” Johnson said.
“Fortunately, at Three Eagles it was decided when agriculture business turned south in the late 1990s that we had to be responsible for our own destiny. As a result, we hired MORE people, and we invested heavily in training, utilizing various consultants initially, the CSS program (I think the only small market company to utilize their excellent training program) and then hiring a full time President and Director of Sales Training, Roger Dodson, who had spent 10 years in the training program at the RAB. The result has been that local direct and local agency business has become our bread and butter. National is something we’ll take when we get it but have put very little reliance on it so it has become our ‘dessert’,” Johnson said. But he also noted that he doesn’t’ like going without dessert, “so I’m sure we’ll find a way to get the dollars from national that we need.”
Sometimes you just get lucky with timing. Interep still has the logo for NRG Media on its client roster webpage. “We have just finished a group-wide deal with Katz,” noted COO Chuck DuCoty when RBR/TVBR contacted him on Friday.
RBR/TVBR note: What’s next? RBR will make every attempt to deliver business options to the radio medium on what form of a proactive strategy is feasible, as well as necessary for a rebirth of what we foresee as a “New Media Firm.”
How should such a firm be structured? What should it do differently? One of the key areas of our 25 years of editorial experience was RBR’s coverage of the radio rep firms in the early 80’s as they began what proved to be the consolidation to just two firms — and now the issue at hand today.
The editors of RBR also seek your input on what the medium should consider as the template for a “New Media Firm” to keep radio and its associated operations relevant to national advertisers for the next 10 years and beyond. Send your comments to [email protected] or post your comment below.