On Thursday, iHeartMedia - the largest radio conglomerate in the US - finally succumbed to its enormous debt burden and filed for a long-anticipated Chapter 11 bankruptcy protection (iHeartMedia Inc., 18-31274, U.S. Bankruptcy Court, Southern District of Texas) after the company and a majority of its creditors reached an agreement for a prepack deal to eliminate tens of billions in debt while the company continues to operate.
After trying to negotiate a deal with creditors since last March, the company said in a statement that it had reached an agreement in principle with investors holding more than $10 billion of its debt, along with its private equity owners. The pact, intended to give the company a framework for a speedier reorganization, would cut iHeart’s debt by more than $10 billion, it said.
"The agreement ... is a significant accomplishment, as it allows us to definitively address the more than $20 billion in debt that has burdened our capital structure,” Chief Executive Bob Pittman said.
Based in San Antonio, iHeart controls 856 US radio stations and employs 17,000 workers worldwide, along with Clear Channel Outdoor Holdings, the largest billboard company in the world. iHeart’s traditional businesses - the radio stations and the Clear Channel Outdoor billboard unit - contribute the bulk of the company's revenue. The Chapter 11 filing didn’t include the billboard unit.
iHeartMedia said it believes it has enough cash on hand, and will earn enough through regular business operations to keep its business running through the restructuring talks, although in light of the recent Toys "R" Us liquidation which took place six months after that particular Chapter 11, we doubt many existing employees will stay there long.
Given the enormity of the debt, Bain Capital and Thomas H Lee who LBOed the company on the eve of the financial crisis in a massive $27 billion deal which was troubled from the start, will surrender most of their ownership stake per the WSJ.
Recent talks had centered on a plan to hand 94% of the equity in iHeartMedia’s radio business and all of the equity in Clear Channel Outdoor to senior creditors led by Franklin Mutual Advisers Inc. The company and its creditors had been haggling for weeks over how much of the remaining 6% of equity in the radio business should go to the company’s junior bondholders and private-equity sponsors.
Equity stakes had been a key sticking point in recent talks, with creditors demanding almost all of iHeart and 100 percent of its healthy Clear Channel unit according to Bloomberg. Malone’s Liberty Media sought to break the logjam late in February by offering $1.2 billion in new loans in return for a 40% stake. JCDecaux SA, the world’s biggest outdoor-advertising agency, also has expressed interest in buying some of Clear Channel’s assets.
To be sure, bankruptcy was only a matter of time: over the past five years iHeartMedia has spent more on debt payments than it earns. With more than $8 billion in debt maturing next year, the company began talks with creditors on a deal to swap a big chunk of debt for some of its equity. This isn't the first piece of depressing news for the waning radio industry in recent months: The iHeart filing comes three months after Cumulus Media, the No. 2 radio broadcaster, filed for bankruptcy.
Meanwhile, there are questions about the company's ultimate viability.
Radio still has enormous reach, but like print, the advent of digital advertising has siphoned off a reliable revenue stream, and left advertisers unwilling to pay the premiums they once happily accepted. iHeart's broadcast stations still reach a staggering 265 million Americans, more than any other media company (including Google and Facebook). However, newer media such as Spotify’s streaming service and SiriusXM’s satellite broadcasts have cut into the audience and put a damper on sales. IHeart, led by Chief Executive Officer Robert Pittman, countered with its own streaming services and a live-events business offering concerts and awards shows.
iHeart's most valuable asset - in the eyes of its creditors - is Clear Channel Outdoor Holdings, a subsidiary to focuses on billboards. Two years ago, the company rolled out a couple of on-demand subscription services to try and compete with Spotify and Apple Music, which were eating into radio's revenues. They have not lived up to the company's hopes.
As Variety points out, among the music companies listed as creditors on the iHeart docket are Nielsen, owed $20 million, SoundExchange, owed $6.4 million, Warner Music Group, $3.9 million, Universal Music Group, $1.3 million, and Spotify, $2.1 million. Performance-rights organizations ASCAP and BMI are each owed slightly over $1.4 million while Global Music Rights is looking at a $2 million debt.
As Bloomberg notes, the bankruptcy caps a yearlong standoff with lenders and bondholders on its latest debt-cutting plan. The deadline was extended more than 20 times as negotiators exchanged proposals and iHeart sweetened the terms. The current attempt at an accord followed at least a dozen debt revisions over the past decade.
The full bankruptcy filing is below.