No other bidder came forward to make an offer for the Inner City Media Corporation (ICMC) stations, so the Thursday (2/16) auction was cancelled and a new company created by Yucaipa Companies and the other senior debt holders won with its “stalking horse” credit bid of $180 million. US Bankruptcy Judge Shelley Chapman is expected to approve the sale at a Tuesday (2/21) hearing – if ICMC and the lenders succeed in convincing her to dismiss an IRS objection.
In response to the objection by the US Attorney in Manhattan, charging that the Chapter 11 auction was designed to dodge $31 million in taxes, ICMC argued that the asset sale via the Chapter 11 auction is in the best interest of the creditors, employees and even the IRS. And it warned of dire consequences if, as the government requested, the Chapter 11 cases are dismissed.
“Dismissal of the cases, however, would cause significant disruption and harm to the Debtors’ operations and significantly impair going concern value. The Debtors would face foreclosure proceedings in New York, California, South Carolina and Mississippi, debt collection actions from trade creditors in multiple jurisdictions, erosion of advertising revenue, and potential departures of key employees and on-air talent. Neither the Government nor the Debtors’ other creditors would benefit from this process; to the contrary, they would be exposed to further harm. Furthermore, at the end of that process, the Government would be in the same position it otherwise will be in if the Proposed Sale is approved because the Debtors would remain unable to satisfy the resulting tax liability. Accordingly, dismissal of these chapter 11 cases is not in the best interests of creditors or the Debtors,” ICMC argued in its response to the US Attorney.
A separate filing by the senior lenders warned that the stations could see revenues decline and turn cash flow negative if the sale doesn’t go through.
“In addition, the Government fails to grasp the substantial benefits the Proposed Sale confers upon numerous stakeholders (including, without limitation, vendors, employees, unions, business partners and customers). Pursuant to the Proposed Sale, the proposed purchaser will make substantial payments and assume substantial liabilities to hundreds of prepetition and administrative creditors. For example, the Purchaser will assume approximately $3.0 million of prepetition vendor payables, $2.4 million of severance and other prepetition obligations to employees, and fund almost all transaction costs. In addition, the Debtors are in the process of negotiating a ‘bridge financing’ package with the Senior Lenders that will provide the Debtors with needed liquidity to conduct operations and pay administrative expenses during the lengthy pre-closing regulatory approval process. Accordingly, the Purchaser is conferring significant benefits to the Debtors’ estates in exchange for the protections it will receive pursuant to section 363(f) of the Bankruptcy Code,” the ICMC filing said in urging the judge to reject the IRS motion.
Two Yucaipa funds and two Fortress funds which own the senior debt have formed YMF Media LLC to become the new owner of the 17 radio stations, once approved by Judge Chapman and the FCC. Is the “Y” for Yucaipa, the “F” for Fortress and the “M” for Magic, as in Magic Johnson, who is already Yucaipa’s partner in some Phoenix stations?
RBR-TVBR observation: Pretend you’re back in the year, oh let’s say 1999, and you had the opportunity to buy a full power FM in New York City and a full-power FM in San Francisco for $180 million – and with 15 other stations thrown in, no less! You couldn’t have believed such a bargain was real. But in 2012 no one even stepped up to top that price. It is a different world.