iHeartMedia Dodges Bankruptcy, Option Remains

iHeartMedia’s lawyers are probably very happy to see May in their rearview mirrors, after dodging a bullet in a Texas courtroom last week. A friendly judge barred the company’s creditors from seeking notices of default on some $6 billion of iHeart’s $21 billion in corporate debt, racked up primarily from pillaging the radio industry over the last 20 years.
iHeart’s creditors were attempting to call out the company for constructing a shell game in an attempt to keep its debt from crushing it. They noticed last year that the company had begun transferring hundreds of millions of dollars in assets to two “independent” subsidiaries named Broader Media and CC Finco. In simple terms, having already borrowed tens of billions against hundreds of stations, thousands of billboards, and countless other media ventures, iHeart moved some of those assets to “new” corporate parents, thereby creating “new” value against which to borrow even more money. Even better, this shuffle protected those assets against existing debt claims.
Threatened with notices of default, iHeartMedia wasted no time in court trying to quash them. No doubt its case was helped when it came to light that one of iHeart’s creditors had made speculative bets on the company’s bankruptcy. Yet on the day the trial began, the company told the SEC that it had offered to refinance some of its debt with the affected creditors — though the creditors also wanted iHeart to stop the chicanery with corporate shells taking on new debt to service the old. (No deal.)
There’s little coverage of this trial outside of paywalls, but this Bloomberg story tells the tale of an iHeartRadio senior executive who testified to skittish business partners and flagging morale in his division as whispers of bankruptcy were bandied about. As the trial continued, iHeart announced the addition of two new seats to its Board of Directors, both of which were filled by folks with vast experience in bankruptcies and subsequent corporate reorganizations.
No need for that just yet, for on May 24th the Texas-based judge told the Texas-based company that it had done no wrong, and barred its creditors from following through on their default threats. However, iHeart’s lawyers didn’t get much downtime: 48 hours later the company was sued in Delaware over (wait for it) the way the company prioritizes its subsidiaries.
iHeartMedia’s lawyers know they can expect to be picked at, hyena-like, in multiple venues over multiple cases alleging multiple fiduciary indiscretions for the foreseeable future. And despite the lamentations of some executives, there’s more than enough going on now that a Plan B, as in bankruptcy, is now considered something other than hypothetical by iHeartMedia itself. In 2019, more than $8 billion of iHeart’s debt comes due all at once, at which point bankruptcy becomes all but unavoidable. Perhaps better to use the time between then and now to soften the blow for its creditors when it comes?