iHeartMedia’s investors are demanding almost entire control of the beleaguered company as it tries to negotiate its way out of bankruptcy.
Bondholders have rejected the San Antonio-based radio giant’s request to extinguish about $14.6 billion of its debt in exchange for 87.5 percent of the company and 87.5 percent of its wholly owned billboard subsidiary. The plan proposes to recapitalize the company with $7 billion in fresh bonds.
The creditors involved in negotiations, led by mutual fund company Franklin Resources, are demanding of 95.3 percent of the company and 100 percent of the iHeartMedia’s ownership of its financially stronger billboard subsidiary, Clear Channel Outdoor Holdings Inc. iHeart owns 89.5 percent of the billboard unit.
The lenders and bondholders “don’t want management to have anything. They want it all,” said Seth Crystall, senior credit analyst for Debtwire, an Acuris company.
Negotiations are continuing behind closed doors as the company attempts to restructure $14.6 billion of its more than $20 billion of total debt, said iHeartMedia, which is the largest radio station owner in the nation.
“No agreement has been reached,” the company said in the filing. “There can be no assurance that any agreement will be reached. Any such agreement will require the consent of additional debt holders who are not party to the negotiations, and who hold substantial percentages of our debt.”
The difference between the two sides amounts to about $800 million, said Philip Brendel, a Bloomberg Intelligence credit analyst.
“The lender group is not moving much. They believe their best interests will be served by the company filing for bankruptcy” instead of an out-of-court agreement, Brendel said.
Much of iHeartMedia’s $20.6 billion in total debt stems from 2008 when two Boston-based private equity firms, Bain Capital Partners and Thomas H. Lee Partners, bought 70 percent of the company, which was called Clear Channel Communications at the time. About 30 percent of the company remains publicly traded.
iHeartMedia has said it owes $324.2 million in debt in 2018 and $8.4 billion that comes due in 2019. The company warned last spring that it might not be able to meet debt payments in 2018.
iHeartMedia has lost money in 29 of its last 30 quarters largely because of the cost to keep up with its debt interest payments on top of its operating and capital costs.
Matters could come to a head in April after the company issues its financial results for 2017 that could conclude that the company cannot continue as “a going concern.”
iHeartMedia could file for bankruptcy before it defaults on its bonds, which would occur 30 days after a written notice is issued, to pre-empt an acceleration of debt payments, Brendel explained.
Efforts to reach the law firm for the group of bondholders and lenders, Jones Day, for comment were unsuccessful Monday.
The latest exchange of debt-related terms at iHeartMedia came last month as another large radio station owner, Atlanta-based Cumulus Media, also filed for bankruptcy in an agreement with its creditors.
Cumulus reported owning 446 radio stations this summer, none in San Antonio, about half of the number owned by iHeartMedia, more than 850.
Brendel said the fact that much of the radio industry is in or near bankruptcy “is a reflection of exuberance that existed in the radio space at one time,” adding that many media companies became over leveraged with debt.
“Their cash flow is not enough to cover their interest” payments on debt, he added.
Brendel said forward-looking advertising buyers prefer digital forms of media, meaning traditional media companies are losing their share of advertising spending.