iHeartMedia, Cumulus Go Debt-Offensive

How many ways can you keep debt at bay? Does non-payment sound like a viable option? Perhaps not if you’re just a mere flesh-and-blood human, but the corporate beast’s a special class.
Over at iHeartMedia, $250 million of the company’s $20+ billion debt came due last Thursday (December 15). In a surprise move, the company announced two days before that it would only be paying back just $192.9 million of these notes and foregoing the rest.
The reason? This debt constitutes money that various subsidiaries of iHeartMedia owe to each other. In addition, these particular debt instruments contain a provision that, should the total debt held between these entities fall below $500 million, it would trigger a “springing lien.” This is a fancy term for extra payments owed to debtors as an incentive for giving the conglomerate a nice line of credit.
By witholding $57.1 million of these payments, iHeartMedia’s total debt in this instance doesn’t fall below the threshold, and thus the company can avoid making the bonus-payments to creditors. To stymie any objection to this ploy, iHeart went to the friendly Bexar County, Texas courts and filed a flurry of paperwork last Monday (to give you an idea of how complex its debt structure is, there 11 petitions in all, involving six Clear Channel iHeart subsidiaries), asking a judge to declare this practice kosher.
According to local news coverage, iHeartMedia claims it’s “between the proverbial rock and a hard place”: some creditors want the company to pay down its debts so as to receive the incentive-bonuses, while others think those bonuses shouldn’t be granted while the company’s books are so far underwater.
iHeartmedia’s two top dawgs, Chairman/CEO Bob Pittman and President/COO Rich Bressler, are trying to put the best spin they can on this maneuver. “We believe we are taking the right actions to strengthen our company for the future and protect what we have built, even though some of those who disagree with our strategy will certainly create noise or confusion in the press,” they wrote in an internal memo.
According to DebtWire analyst Seth Crystall, “They have the money, so it’s not like they don’t have the abiliy to pay themselves back. They’re choosing not to. . . .At this point what they’re doing is continuing to operate. They’re looking at ways to kind of survive long enough to give themselves the opportunity to have other options.”
Crystall also suggests the debt-avoidance allows iHeartMedia to hang on to some lucrative physical assets such as broadcast infrastructure. Unfortuantely, the company already sold off a goodly portion of that last year for a few hundred million dollars – cash long-burned simply to service the interest on iHeart’s debt crush. (Now it pays some $20 million a year to lease space on the towers it once owned.)
Meanwhile, Cumulus – America’s #2 radio conglomerate – also upped the ante with its creditors last week, to the tune of $610 million. That’s the portion of its $2+ billion corporate debt that comes due in January of 2019. Cumulus has been working feverishly to refinance this under more favorable rates and other terms, and wants to use a $200 million revolving line of credit it has with JPMorgan Chase to make it happen.
However, the bank doesn’t think a revolving line of credit is a good instrument to refinance long-term debt with (and you thought juggling multiple credit-card balances was rough). On the same day iHeart went to court in Texas, Cumulus was in New York filing suit to compel JPMorgan’s compliance.
There’s a clock on this one: Cumulus’ plans to refinance this portion of its debt must be completed by January 27th or the deal falls through. And if a refi can’t be resurrected by mid-2018, that would set in motion an uncomfortable timetable for the entirety of Cumulus’ debt to be repaid, thereby also risking a default.
According to the company, 57.3% of the affected bondholders have signed onto the refinancing proposal, if the pesky bank would just get out of the way. CMLS shares slipped some in trading last week, starting out at $1.25 but now hovering within a dime of $1; falling below that risks the potential for delisting (again).
It’s far too early to tell the impacts that a Trump administration will have on the economy, but its fundamentals remain unchanged – and for a system that’s allowed its two largest commercial radio station owners to overleverage themselves collectively to the tune of nearly $24 billion, that’s not good. Everyone’s now gaming to have some semblance of a chair for when the music stops before the decade is done.

This is fine meme (dog in room on fire)