iHeartMedia Creditors Move to Block Debt Restructuring

Reuters reported on Friday the 21st that a group of iHeartMedia lenders have signed a cooperation agreement to oppose the debt overhaul of the largest owner of U.S. radio stations and the parent company of Clear Channel Outdoor.

Insider has previously reported  on iHeart and their proposed debt swap. The proposal was originally contingent on a three tier participation scenario providing potential discounts to iHeart on the existing debt of 12-25%, extending the maturity date of the notes and reducing the interest rate. In return the lenders could earn a range of equity interest in a new entity, CCO Holdings, that would hold iHearts 89.9% interest in Clear Channel Outdoor. iHeart made the original offer on March 15th, giving bond holders until April 5th to tender their notes.  Since then, the deadline has been pushed back twice, ultimately  to the deadline on Friday the 21st.

The creditor group has indicated that they represent more than half of the term loan holders and seem to be looking to put pressure on iHeart to improve on the current loan swap offer, or provide a new proposal.

One of iHeart’s responses came on April 20th with an 8-K filed with the SEC as an supplement to the original filing for the debt proposal.  In that 8-K filing they provided a preliminary look at financials for the quarter ended March 31, 2017.  Included in the filing is the following statement which outlines the difficulties of the current debt structure:

For the year ended December 31, 2016, we adopted a new accounting standard that requires us to evaluate on a quarterly basis whether there is substantial doubt about our ability to continue as a going concern for a period of 12 months following the date our financial statements are issued. A substantial amount of our cash requirements are for debt service obligations. Although we have generated operating income, we incurred net losses and had negative cash flows from operations for the years ended December 31, 2016 and 2015, as well as for the quarter ended March 31, 2017. Our current operating plan indicates we will continue to incur net losses and generate negative cash flows from operating activities given iHeartCommunications’ indebtedness and related interest expense. During the quarter ended March 31, 2017, we spent $570.4 million of cash on payments of principal and interest on our debt, net of facility draws and proceeds received, and anticipate having approximately $1.7 billion of cash interest payment obligations for the full year 2017. At March 31, 2017, we had debt maturities totaling $316.5 million, $324.2 and $8,369.0 million in 2017, 2018 and 2019, respectively. Our debt maturities at March 31, 2017 include $305.0 million outstanding under our receivables based credit facility, which matures on December 24, 2017, and $112.1 million of 10% Senior Notes due January 15, 2018. Based on the significance of the forecasted future negative cash flows, including the maturities of the $305.0 million receivables based credit facility and the $112.1 million 10% Senior Notes due January 15, 2018, and the uncertainty of the outcomes of the Exchange Offers and Term Loan Offers, management anticipates that our financial statements to be issued for the three months ended March 31, 2017 will include disclosure indicating there will be substantial doubt as to our ability to continue as a going concern for a period of 12 months following the date the first quarter 2017 financial statements are issued as a result of uncertainty around our ability to refinance or extend the maturity of our receivables based credit facility, to achieve our forecasted results, and to achieve sufficient cash interest savings from the pending Exchange Offers and Term Loan Offers.

Insiders Take:  iHeart recognizes that they can not continue to operate long-term without restructuring their $20 billion debt obligations.  Their creditors seem to be playing hardball as they seek a better deal in a restructure.  Our experience has been the only winners in a bankruptcy are the attorneys, so neither group will do well if iHeart chooses, or is forced to file.  In any event, the stakes are enormous and Clear Channel Outdoor, which is a very valuable asset for iHeart could be right in the middle of this struggle.

 

 


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