Borrow $1,000 from the bank, and the bank owns you. Borrow $100 million, and you own the bank. This seems to be the mantra for end-of-year finance-maneuverings in the U.S. radio sector. Three companies in particular are making plays:
1. Clear Channel iHeartMedia: After beating back a default-notice earlier this year by some creditors to whom the company owes more than $20 billion in debt, run up in the post-1996 consolidation and acquisition-frenzy, another lawsuit filed in Delaware accusing iHeart of playing fast-and-loose with debt-swapping between subsidiaries has been dismissed.
This has emboldened the company to seek a further renegotiation of a portion of its debt-payments. In a statement released late last month, iHeart announced that it’s asked some investors for the flexibility to “amend their terms,” according to the Tom Taylor Now newsletter. If iHeart gets consent, it may attempt to revise the interest rates on these debt-notes, or swap the notes down the road for other debt instruments at more manageable terms. One anonymous watcher tells Tom that if the company is successful, iHeart’s “debt wall,” or the point where the company ceases to be able to make adequate payments on what it owes, might be pushed back “until at least 2018, maybe 2019.”
iHeartMedia has even insinuated that bankruptcy may come sooner rather than later unless it’s given approval to do this. With a $193 million payment coming due on December 15, and considering that if it were to go belly-up tomorow most creditors would receive less than 80 cents on every borrowed dollar, it’s likely that it will get its way. That said, the company is trying to take the sting out of its demand with $20 million in incentive-payments ($8 millon now, and up to $12 million if debt is restructured) to affected (and qualified) debtors.
According to Debtwire analyst Seth Crystall, “things are going on behind the scenes. . .the company is not forthcoming because it is owned mainly by private-equity guys.” You own the bank, indeed.
This brinksmanship is not sitting well with Fitch Ratings, which on Friday downgraded iHeartMedia’s credit rating from CCC to CC. Ratings begin at AAA, then AA, then A, then BBB, etc. all the way down down to D; according to this chart, a CC rating from Fitch suggests “highly vulnerable, very speculative bonds,” and on its own site Fitch describes CC as, “Default of some kind appears probable.” Fitch believes the company’s cash-burn rate regarding its debt-payments is not sustainable, and likely to hit the wall in 2018.
2. Cumulus Media: The company’s trying to dig itself out of more than $2 billion in debt, also due to consolidation-madness. After shaking up its executive management last year, bringing in a restructuring and bankruptcy-expert to helm the company, there’s fairly little of substance to show for the effort. When Cumulus reported on its third-quarter 2016 figures (revenue up less than 1% for the term compared to a year ago), its chief financial officer explicitly noted that all options remain on the table.
Just last week, Cumulus did a deal to refinance more than half of the $600 million in debt it has coming due in 2019. As a matter of perspective, Cumulus’ total debt was just $600 million back in 2010.
In the midst of all of this, ratings at many Cumulus stations have ticked up and the company’s been able to stanch the morale problems, though turnover remains a concern. Just this past October, the company did an 8-for-1 reverse stock split in order to keep it shares above $1 on NASDAQ – fall below this threshold and face delisting. Yet this month CMLS shares flirted with that floor again, before rebounding to $1.27 at the close of trading last week.
That gives Cumulus, the second-largest radio broadcaster in the country by number of stations owned, a market capitalization of just $38 million – or enough value to cover just 16% of the company’s outstanding debt. This is a fairly stunning contraction over the course of just a year.
3. CBS: As most other companies are looking at flat revenues and a media marketplace that’s still trying to re-relevance radio broadcasting, any move for an initial public stock offering seems like positive movement. But for whom?
CBS Radio is expected to be spun off and publicly traded on its own sometime in the first quarter of 2017. But the devil’s in the details: only 20% of the company’s total value is initially being released as stocks for trade — and before CBS lets radio go, it’s saddling the “new” company with nearly $1.5 billion in debt. In simple terms, the present parent company (CBS) and its investment-managers are taking their “profits” before the deal actually goes down, leaving those who buy into the company to fill the fiscal hole.
And once CBS rids itself of radio, it’s looking increasingly likely that it’ll recombine with Viacom. If that sounds familiar, it’s because the two companies first merged in 1999, then separated in 2006. (Update: looks like this marriage has been called off, as of today, for now.) As for CBS Radio, somwhere down the line post-IPO in 2017 it’ll change its corporate name to drop the CBS brand entirely.
It’s imperative to recognize that little of this has to do with the actual fiscal success of the company. Advertising revenue at CBS Radio is actually in a net decline for the year (a trend since 2013), and the numbers would look worse except for revenue generated from selling the naming rights of “station assets” (think branded newsrooms) and cost-cutting (think layoffs and freezes).
Once upon the time, the business of radio was broadcasting. Now, the business of radio is business: how to keep creditors at bay, and where might we find some stock-suckers? As the late, great George Carlin once observed more than a decade ago, radio, like the rest of corporate America, is nothing more than one big club that we ain’t in.
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