Has SBS’s Leadership Set The Stage For A Bruising Loss?

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MIAMI — Eight days ago, two key members of Spanish Broadcasting System‘s Board of Directors abruptly tendered their resignationsGary B. Stone, a Hispanic media veteran with a resume that includes a lengthy tenure at Univision Radio, declined to comment on his exit when reached by RBR+TVBRAlan B. Miller also refrained from offering further details of his departure from the SBS board, saying, “I said it all in my note that was published.”


However, a source close to the matter willingly shared with RBR+TVBR what’s going on behind the scenes at this Miami-based media company controlled by SBS Chairman/CEO Raul Alarcon Jr. 

Simply put: It’s him against a new group of preferred shareholders, and things could be getting bloody very soon.

“Think of iHeartMedia,” this insider says. “The original lenders got out years ago. The same situation has now happened at SBS.”

This is the result of the departure of old preferred shareholders at SBS — namely Lehman Brothers. They had the biggest position among preferred shareholders at the company. But, with their discontent over SBS’s operations growing, they “got out” and “cut their losses,” the source says.

SBS’s relationship with Lehman Brothers ended under some not-so-pleasant terms. On Feb. 14, 2013, Lehman initiated a litigation against SBS in Delaware seeking a declaratory judgment that a Voting Rights Triggering Event had occurred pursuant to the certificate of designations for SBS’s Series B preferred stock. This, Lehman argued, was triggered by the non-payment of dividends.

Specifically, Lehman alleged that SBS was prohibited from incurring indebtedness but nonetheless did so for the purposes of purchasing assets relating to its Houston Mega TV O&O — KTBU-55 — and the issuance of its 12.5% Senior Secured Notes due April 2017.

SBS defaulted on the timely repayment of those notes and continues to work on a recapitalization strategy. This plan, however, is moving forward in a matter that both Stone and Miller were at great odds with.

With Lehman no longer a preferred shareholder, “new” preferred shareholders are now involved — with the original lenders including Lehman selling their shares at a “big discount” to the new lenders.

These new lenders aren’t up for bargaining with Alarcón or SBS, the insider says.

“SBS has proven to be a hardball player with an unbelievably bloated corporate overhead,” the source notes. “They are getting ready for a battle, and lenders never lose in these battles.”

With SBS “way under water,” the insider says, and Alarcón “difficult to deal with,” the next several months could be bruising for the multimedia company.

As of Friday midday, SBS shares are trading at $1.01. From a ratings perspective, SBS radio stations in Puerto Rico, New York and Miami continue as top performers. Fierce competition in the regional Mexican space continues to be seen in Los Angeles.

Meanwhile, the specter of an April Moody’s Investors Service downgrade of SBS’s probability of default rating (PDR) to D-PD from Caa3-PD still lingers.

The company’s Corporate Family Rating was downgraded to Ca from Caa2, the senior secured notes rating was downgraded to Ca from Caa2, and the preferred stock rating was downgraded from Ca to C.

The outlook remains negative.