Bankruptcy Implications For Clear Channel Outdoor

As iHeartMedia heads into bankruptcy, Insider will narrow our focus more to how the bankruptcy process may impact Clear Channel Outdoor. Along with our own commentary, Insider will refer our readership to other articles of merit as we scrub through the news of each day.

One such article is by Michael Boyd, a contributor to the Seeking Alpha web site, who provides his thoughts on how an iHeart bankruptcy could impact Clear Channel Outdoor.  Boyd does not pull punches when it comes to criticizing iHeart’s stewardship of Clear Channel Outdoor:

  • As majority shareholder, iHeartMedia has drained operating cash from Clear Channel Outdoor through several activities including:
    • Potential above market billing via its corporate servicing agreement with CCO
    • Licensing trademarks and domain names to CCO for nearly $40mm per year
    • The $1,051mm promissory note due from iHeartMedia, which carried interest rates below the fair borrowing rate that iHeartMedia could have found in the open market.
    • Questionable special dividends from CCO to iHeart exceeding free cash flow that should have been retained to reduce leverage.

Boyd thinks and Insider agrees that the iHeart bankruptcy was the “absolute best thing” for Clear Channel Outdoor. Even though it may mean not getting a full recovery of the promissory note.  While the bankruptcy remains in place, iHeart cannot extracting cash from CCO.

Boyd sees three potential scenarios for Clear Channel Outdoor coming from the bankruptcy proceedings.

  • Clear Channel Outdoor is consolidated in the bankruptcy. Creditors look to see the assets sold off in bulk to a new owner, raising substantial funds to help settle the iHeart’s bonds with cash.  This would be a liquidation scenario.
  • Clear Channel Outdoor shares are distributed to creditors on a pro-rata basis instead of cash. Since the new shareholders are Lenders it is likely they would sell their shares into the public market.
  • No distribution takes place, and assets are left included in the new restructured firm as is. In this case, iHeartMedia emerges from bankruptcy with Clear Channel Outdoors still under its umbrella.

Boyd admits it is difficult to determine which scenario will win out in bankruptcy.

Insider continues to feel the most likely outcome will be freedom for Clear Channel Outdoor.  Whether that means the spin off of the entity with new ownership or a sale of assets, either in whole or in part, only time will tell.  We’ll write more next week about who might be able to buy Clear Channel Outdoor.

 

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