Radio Industry's Money-Flings

The money-shuffle has intensified in the radio industry as of late:
Clear Channel iHeartMedia: Still saddled with more than $20 billion in debt – of which more than $8 billion comes due in 2019 – the company’s going to great lengths to shuffle revenue between its subsidiaries to keep on top of its obligations. The latest move involves iHeart’s outdoor billboard division, one of the more financially solvent of the bunch, turning over nearly 90% of its latest quarterly dividends to the parent company.
In addition, iHeart filed papers with the Securities and Exchange Commission recently regarding the potential for its outdoor division to acquire the intellectual property to the words “Clear” and “Channel.” This sounds like the corporate version of scrounging for change in couch cushions; no word on how much those two words, separately or in conjunction, might actually fetch.
iHeart’s recent debt-exchange, for which it traded notes due in 2018 for paper payable in 2021, was classified by Moody’s Investor Services as a combination “distressed exchange (DE) and a Default due, in part, to the extension of the maturity date beyond its initial terms and the company’s very high leverage levels,” further observing that “the company will remain poorly positioned to withstand an economic recession or any material weakness in terrestrial radio in the future.”
iHeart’s latest quarterly report touts the fact that the company’s broken a six-year trend of net losses, but this means little given that the conglomerate’s long-term debt outlook remains so dismal.
Looks like it’s not just lowly bloggers now using the b-word to explain iHeart’s precarity. A recent article in Variety pulls no punches: “The company is fighting its debtholders on several fronts in court. In December, it skipped a payment to one of its subsidiaries, and ratings agencies warned that its balance sheet had become unsustainable. In 2019, $8.3 billion in debt comes due, and the company appears to have no realistic way to pay it off.
“‘They’ve got a ticking time bomb,’ says Jude Gorman, general counsel of Reorg Research, which analyzes distressed companies. ‘They clearly thought they had a path, and so they gave it a shot. It didn’t work out.’
“While iHeart says it is working hard to address the balance sheet, many analysts expect it to declare bankruptcy in the next year or two. One board member admits to Variety that a restructuring — either in or out of court — is inevitable.” The article’s author, Gene Maddaus, undoubtedly got some nastygrams from iHeart’s corporate communications flacks for that.
Cumulus: The #2 radio conglomerate in the nation (by number of stations owned) is having a rough go at a rebound. After a reverse 8-for-1 stock integration late last year, the markets have not been kind. Cumulus stock is now trading closer to 50 cents per share, giving the entire company a market capitalization slightly north of $15 milllion, yet again risking eventual delisting from NASDAQ. For some perspective, just 15 months ago Cumulus’ market cap was above $80 million.
NASDAQ’s own “risk grade” does not portend good things: on a scale of 0-1000, with zero being fiscally bulletproof and 1000 being corporate-euthanasia time, Cumulus’ rating is 451. (Anything over 700 is considered an “extremely risky” investment.)
Cumulus also took one in the nuts in court recently regarding an attempt to massage its $2.4 billion debt load. At issue was a proposal to refinance more than $600 million with a revolving credit line and a variety of enticements to existing creditors, but JPMorgan Chase wouldn’t approve, since it’s effectively a shell-game – moving debt from one ledger-column to another. Cumulus went to court in December in an attempt to compel JPMorgan’s compliance…but a judge last month sided with the bank, putting the entire refinancing scheme in jeopardy. Like iHeartMedia, if Cumulus doesn’t get a handle on its debt by 2019, a goodly portion could come due at that time…which would effectively push the company into receivership.
CBS/Entercom: Despite all the rumblings and posturing last year about floating an IPO (again) on the stock market, in early January CBS Radio announced that it instead sold itself to Entercom. But it’s not really a sale – it’s a Reverse Morris Trust deal, which in simple terms means it’s considered a hybrid of a spinoff and an acquisition.
The $4 billion transaction will be consummated under the Entercom name, although existing CBS shareholders get more than 70% of the merged company. By setting it up as an RMT, the tax burden typically associated with a merger or acquisition is reduced effectively to zero…happy news for the shareholders and executives, but materially meaningless for the rest of us.
CBS CEO Les Moonves doesn’t sound sad to be exiting the radio business; in fact, he’s salivating at the prospects for more mergers and acquisitions under a Trump FCC led by Chairman Ajit Pai. Moonves, who infamously said last year that while Donald Trump “may not be good for America, it’s damn good for CBS,” doubled down when speaking to investors last month. He told them that he’s “looking forward to not having as much regulation and having the ability to do more,” and that Pai is “very beneficial to our business.”
The newly-beefed Entercom is expected to become the #2 radio conglomerate in terms of revenue, but it, too, carries a debt-load measured in the billions – recently spiked by a loan of more than $900 million that CBS Radio took out while it was investigating the IPO option. According to the Tom Taylor Now newsletter, Entercom’s debt now stands at approximately four times its annual cash flow.
For all the radio industry’s bleating about its public service and ubiquitous availability, the real action in the sector is all about keeping the status quo intact, where ubiquity reigns, though is actually becoming less valuable since public service has been effectively reduced to lip service. Two decades on from the consolidation-frenzy that decimated the live-and-local DNA of the medium, we’re all still paying the price…except for the upper-crust executives and the financial firms making mad bank keeping overleveraged companies away from the precipice of collapse. Truth be told, market collapse might be considered a major disaster for those in the green, but for the rest of us it could actually help to revitalize the medium.