Various news sites reported yesterday that iHeartCommunications failed to make a $106 million interest payment to holders of its 14% senior unsecured notes with a 2021 maturity date. The interest payment was due on February 1st.
Insider would more likely describe that iHeart “chose” to miss the payment rather than “failed” to make the payment. The agreement allows for a 30 day grace period for payment before iHeart enters into default. The company will most likely use the time in what may be a final attempt to leverage a restructuring agreement on $14.6 billion of the debt held in iHeart Communications. When we last visited this ongoing negotiation, sponsors of the original deal, Bain Capital and Thomas Lee Partners, had offered creditors 87.5% of a reorganized equity, as well as 87.5% of the company’s stake in Clear Channel Outdoor. The lenders have, so far, said no to the offer.
Interestingly, a large radio broadcast organization using this strategy is not a new occurrence as the second largest radio group next to iHeart, Cumulus, did the exact same thing in November 2017. 30 days later they filed Chapter 11 and now are trying to restructure their debt through the court system.
Insider thinks that iHeart has no leverage in this situation. If they decide to declare bankruptcy, a lot of money will get spent (mostly with the lawyers) and the outcome will be the same; the lenders are going to end up with most, if not all the business. It may take a while, but we will not be surprised to see Clear Channel Outdoor with new owners. We see that as good news. It is very difficult to run a business where every management decision made, at the parent level, you have to ask the question, “now how will this impact our Lender agreement and relationship?” This has resulted in Clear Channel Outdoor having to sell assets and upstream funds to their parent company rather than focus on growing their business.
Clear Channel Outdoor recently openly expressed some frustration as in a January 8th 8-K filing they stated their intent to make a demand for repayment on January 24, 2018 of $30.0 million outstanding under a Revolving Promissory Note they hold with iHeart Communications.
The next 30 days should be interesting….
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