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A Curious Snag In Debt-For-Equity Restructurings As Goldman And JPM Do A Stealthy Roll Up Of The Media Industry

Tyler Durden's picture


While most hedge funds traditionally have an on-shore and an off-shore investment vehicle, the bulk of investable capital is allocated to accounts domiciled in the Caymans, Bahamas, Isle of Man, or some other tax "friendly" country, as LPs are never too crazy about that little snag known as taxes, and offshoring provides some nice and useful alternatives to said snag. Distressed hedge funds, those that acquire either secured or unsecured debt with the hope of equitization, are no exception. Yet equitization by essentially foreign vehicles is starting to get some dirty looks by regulators, which limit "foreign" equity investments in traditionally American companies and sectors. Some developments in the upcoming restructurings of media companies may put a new wrinkle on what is promptly becoming the most prevalent and profitable means for hedge funds to invest capital (not by necessity but for the simple reason that if a sector is not too big to fail, it is likely failing massively). The case of Citadel Broadcasting, which Zero Hedge discussed recently as commentary highlighting the lunacy of the current investment climate, is just such an example.

According to the Wall Street Journal:

Wall Street lenders are tripping over federal media-ownership rules as
they find themselves the unexpected owners of several distressed radio,
television and newspaper companies.

The issue has taken center stage at Citadel Broadcasting Corp., as
one of the U.S.'s largest radio broadcasters races to revamp its
balance sheet. Citadel has offered senior lenders owed $2 billion --
including J.P. Morgan Chase & Co., General Electric Co.'s GE Capital and ING Groep NV -- a deal that would exchange a big chunk of debt for equity, people familiar with the negotiations said.

On Wednesday, Citadel faced a deadline to make a $2 million interest
payment, but its status remained unclear. Talks have slowed in recent
days in part because some lenders have been caught off-guard by Federal
Communications Commission rules designed to limit concentrated holdings
of media firms, said people familiar with the matter.

For big banks and hedge funds holding debt in everything from radio and
television stations to newspapers, FCC rules have made restructurings
more complex. The FCC must approve media sales and has specific rules
that limit ownership of multiple media outlets in individual markets,
even when such shareholder stakes are small.

The calculus can be even more difficult for hedge funds, some of which
are registered offshore. The FCC caps foreign ownership at 20% of a
U.S. broadcaster -- 25% if the stake is through a holding company --
which can change how new ownership stakes are structured.

And lest someone think that this yet another shady space of the corporate finance world may be one that has somehow avoided the tentacles of the squid, think again:

J.P. Morgan and Goldman Sachs Group Inc. are also among radio stations' leading lenders.

Goldman Sachs and other lenders just swapped debt for 85% of Nassau
Broadcasting Partners LP's equity. Nassau operates 51 radio stations
along the East Coast. Nassau had to put its Cape Cod, Mass., stations
into a separate company, because Goldman has another radio investment
in Cape Cod and didn't want its stake to cause a conflict with the FCC.

Throw companies like Tribune into the mix where JP Morgan will allegedly end up with an majority equity stake, and one wonders why Goldman and JPM were so eager to provide "rescue" financings to virtually the entire distressed media space: both companies knew too well that sooner or later they would end up with full equity control over essentially the most coveted industry: thousands of TV stations, radio channels, newspaper and magazines. If you thought the media propaganda was unbearable now, just wait. Nonetheless, one doubts that much will be made by the FCC of JP Morgan's or Goldman Sachs' stealthily encroaching control of the entire media world. After all, they already pretty much already control the airwaves. This way their domination of the 4th estate and the idiot tube will soon be complete.

As for traditional hedge funds who think they are on equal footing with the big boys, they may be in for a surprise.

At ION Media Networks
Inc., lenders are poised to get ownership of the television company
while doing away with some $2.7 billion in debt and other obligations.
ION's lenders include investment firms Avenue Capital, Black Diamond,
Canyon and Trilogy Portfolio Co.

Alas, all these funds operate primarily out of their offshore accounts. So while they just now start the long, hard process of convincing the FCC they have nothing but the best P&L intentions, Goldman and JPM, or better known as the Treasury and the Fed, will have long cemented their controlling stakes in a streamlined, deleveraged media industry.

Of course, as any assertions that select financial organizations seek to control the media usually are met with counter allegations of the "tin-foil" hat wearing variety, Zero Hedge will, over the coming week, demonstrate in which media companies Goldman and JP Morgan currently are the key fulcrum security holders, and where they will soon have equity-stake dominance, read: full freedom to dictate what, who and why, when and where appears in print or on the airwaves. We will also provide a breakdown of just how many TV station affiliates, radio and cell phone towers, newspapers, magazine, pamphlets and blogs will shortly be under the full equity control of the two Wall Street firms.


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Sun, 09/20/2009 - 20:15 | Link to Comment . . .
. . .'s picture

Tyler, Tyler, Tyler

39 of 40 senate republicans wrote a letter to Geithner requesting not to extend TARP handouts past December.

Mon, 09/21/2009 - 02:12 | Link to Comment msorense
msorense's picture

Those worthless pieces of shit.  Like Faber, I have ZERO confidence in the leadership of this country. TARP is so 2008!  It's all about secret Fed bailouts now:

Is anyone covering this shit or are all the banks getting secret $$$$$ infusions.  At what point to us bears give up and just start shorting Treasuries? 

Mon, 09/21/2009 - 03:40 | Link to Comment Hephasteus
Hephasteus's picture

Lol the comments on there. Dollars are fungible. I want to print some dollars and buy stuff with it cause dey is fungible and theres NOTHING wrong with DAT. It's just perversion hatin. Just because some fool don't have no fungibility doesn't mean the people with fungibility shouldn't be fungibilitatin everything they feel like.

Mon, 09/21/2009 - 08:50 | Link to Comment Anonymous
Mon, 09/21/2009 - 09:52 | Link to Comment Anonymous
Mon, 09/21/2009 - 12:51 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:26 | Link to Comment Fritz
Fritz's picture

Coming soon to a TV station near you:

GSBS TV - the "all greed, all the time" channel.

...including the new hit series; Attack of the Vampire Squid.

Sun, 09/20/2009 - 21:20 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:27 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:37 | Link to Comment RobotTrader
RobotTrader's picture

Might as well watch some of the others get squeezed...


Sun, 09/20/2009 - 20:43 | Link to Comment deadhead
deadhead's picture

Robo...picture of A.J.Cohen would be fitting.

Sun, 09/20/2009 - 22:33 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:42 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:58 | Link to Comment Project Mayhem
Project Mayhem's picture

Wow. I thought this was an Onion article at first.   Yeah I agree -- blogs are such terrible sources of information. 


Okay Obama, with this story, you just made This Week In Mayhem geopolitics section!!  Congratulations!


Sun, 09/20/2009 - 21:14 | Link to Comment Anonymous
Mon, 09/21/2009 - 07:22 | Link to Comment London Banker
London Banker's picture

I think Washington prefers serious "fact checkers" like Judith Miller and Adam Nagourney of the New York Times, who will print whatever they are spoon fed by anonymous sources about anthrax, WMDs, Iranian nukes, OBL's latest threat, and other warmongering BS.

Without the mainstream channels, the only information getting widespread coverage might resemble reality too much for convenience of the politicians' agendas.  Or worse yet, people might turn to foreign news media like the BBC or Asia Times and learn that America is more at risk from the corruption within than from its "enemies" abroad.

Sun, 09/20/2009 - 21:23 | Link to Comment Anonymous
Mon, 09/21/2009 - 06:37 | Link to Comment Marge N Call
Marge N Call's picture

"I am concerned that if the direction of the news is all blogosphere...... that what you will end up getting is news from people that are not owned by the same people that own me, which could really derail the propaganda stream and provide a lot of mutual understanding," he said.

Shark has officially been jumped.

Mon, 09/21/2009 - 07:42 | Link to Comment Mediocritas
Mediocritas's picture

Yeah! Let's bail out the newspapers. That's great! We should also go back in time and bail out the horse and cart industry about the time that cars were invented.

Sun, 09/20/2009 - 20:48 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:52 | Link to Comment Cursive
Cursive's picture

They are welcome to have these "assets."  Kinda reminds me of when the Japanese bought 30 Rock.  Lots of Americans panicked, but what where the Nips gonna do, move it?  Somebody has got to be a custodian every now and then and I'd say that GS and JPM are expanding their balance sheets too much.  Not that it will matter.  Obama will surely backstop them.

Sun, 09/20/2009 - 20:55 | Link to Comment Project Mayhem
Project Mayhem's picture

What I want to know is how this fits in with the "cash-for-calamari" Blankfein corruption scandal

Sun, 09/20/2009 - 21:01 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:04 | Link to Comment deadhead
deadhead's picture

TO: Hank

FROM: Rahmster

Your selfless duty to our country has not gone unnoticed as I reiterate our country’s deepest gratitude for your objective and impartial approach to solving our nation’s banking crisis.  Your actions have resulted in not only stabilizing our financial system, but strengthening it through your policy decisions to diversify our systemic risk among a multitude of 1, maybe 2, financial organizations.  

Though you find yourself now in the blissful state of retirement wiling away the days with defense counsel, I must ask you to return to Washington as your country desperately needs you once again.

The Federal Communications Commission is in danger of failing due to an antiquated and capital resistant  set of rules that has threatened our media and their precious right to free speech.  Your country needs a person with your specific background and experience in debt to equity conversions to guide the FCC through the necessary changes to ensure a bold new world of a reinvigorated media and communications infrastructure.  Truly, we feel your presence and connections to others who want to be a “force for good” in America can do for the media in this country what you did for our banking system.

Sun, 09/20/2009 - 21:06 | Link to Comment Hephasteus
Hephasteus's picture

Since it will be not for profit it will have steady incomes like the SEC and be a good stabilizing force for good. Pay Per Propaganda should be a hit. I'm feeling monetized already.

Sun, 09/20/2009 - 21:08 | Link to Comment fotokemist
fotokemist's picture

The range of my personal friends includes laborers with chicken producers, school teachers, nurses, physicians, university professors, etc.  I know of not one who supports ever expanding bailouts.

This situation is going to end badly if congress does not stop redistributing the little wealth left in our country.

I hope everyone is corresponding with their congress critters regularly.


Mon, 09/21/2009 - 00:03 | Link to Comment Anonymous
Mon, 09/21/2009 - 01:10 | Link to Comment chumbawamba
chumbawamba's picture

Yes, I correspond with them often to tell them what whores they are.

Bring on the revolution already.  I'm tired of waiting.

I am Chumbawamba.

Sun, 09/20/2009 - 21:13 | Link to Comment john_connor
john_connor's picture

I only read ZH for my news, so the squid can suck on someone else's face.  The underground revolution has started.

Sun, 09/20/2009 - 21:15 | Link to Comment laughing_swordfish
laughing_swordfish's picture

Come on now.

You don't seriously think that control of the media by the likes of JPM and  

GS is going to change anything do you?

Look at the WSJ since Murdoch took it over.

'Nuff said



Sun, 09/20/2009 - 21:19 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:34 | Link to Comment AN0NYM0US
AN0NYM0US's picture

PM a companion article to the newspaper bailout theme (perhaps from a newspaper that will be a beneficiary of said bailout)


Unemployed homeowners could get financial assistance

WASHINGTON — The Obama administration is engaged in high-level talks about providing financial assistance to homeowners who've lost their jobs and can't afford their mortgage payments....

Sun, 09/20/2009 - 21:34 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:37 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:45 | Link to Comment aswipe
aswipe's picture

Watch out for American Investor Idol with Nancy Pelosi, Ozzy Ozbourne and the recently made available Beaker as your esteemed judges.


Sun, 09/20/2009 - 21:48 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:50 | Link to Comment max2205
max2205's picture

Test testing

Sun, 09/20/2009 - 21:50 | Link to Comment arnoldsimage
arnoldsimage's picture

they are really not that bright... they're all going to hell.

Sun, 09/20/2009 - 21:53 | Link to Comment max2205
max2205's picture

Go see Brazil. GS JPM is not just for breakfest anymore

Sun, 09/20/2009 - 21:55 | Link to Comment Anonymous
Sun, 09/20/2009 - 22:03 | Link to Comment GlassHammer
GlassHammer's picture

Since journalistic integrity is descending faster than Rosie O'donnell chasing a falling doughnut, I weep for the future of mass media.


Sun, 09/20/2009 - 22:31 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:33 | Link to Comment Mr. Mandelbrot
Mr. Mandelbrot's picture

Idiocracy is one of my favorite movies of all time!!!!!!!  We must work now to stop it from becoming prophetic.

Mon, 09/21/2009 - 01:14 | Link to Comment chumbawamba
chumbawamba's picture

Are you kidding?  We already live in an idiocracy.  Take advantage of it.  Lots of stupid people to cheat.  Like shooting fish in a barrel.

I am Chumbawamba.

Sun, 09/20/2009 - 22:41 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:03 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:38 | Link to Comment JohnKing
JohnKing's picture

That's Eric Schmidt's job, Google is the internet lord.

Sun, 09/20/2009 - 23:18 | Link to Comment Anonymous
Mon, 09/21/2009 - 02:45 | Link to Comment Anonymous
Sat, 09/26/2009 - 06:31 | Link to Comment Anonymous
Mon, 09/21/2009 - 12:35 | Link to Comment Anonymous
Mon, 09/21/2009 - 19:21 | Link to Comment Anonymous
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