- Efforts to exchange bonds and loans slow to gain traction
- Bankruptcy filing could wipe out equity for PE sponsors
- Bain, THL second largest lenders to the company
By Shasha Dai, CapitalStructure
A bankruptcy filing by iHeartMedia Inc is not yet a certainty even though efforts by the radio and advertising company to exchange its current loans and bonds have been slow to gain traction, a source familiar with the matter told CapitalStructure Wednesday.
IHeart Media is backed by Bain Capital and THL Partners.
Negotiations with the creditors continue and will probably take a few more rounds, the source said.
“These things always have significant rounds of negotiation,” the source said. “It is never the case that somebody is just going to say, ‘OK, that’s fine.’ It’s always the case that people might say, ‘Yeah, we kind of like those things. We don’t like those things. We would like to have more.’”
“The process will continue to play itself out,” said the source.
A deadline to tender existing term loans expired last week with a “significant number” of term-loan lenders participating, the source said, declining to be specific. If less than 50 percent of the principal amount of the term loans is tendered, iHeart could not complete an exchange offer for its priority guaranteed notes but can still choose to close only on the tendered loans.
The low levels of participation from lenders and bondholders so far triggered market speculation that iHeart may have to file for bankruptcy.
The source told CapitalStructure that much is at stake for various stakeholders and that a Chapter 11 filing threatens to wipe out significant value of one of the largest radio-station operators and outdoor advertisers.
For one, holders of iHeart’s 2021 senior notes would receive zero recovery in a bankruptcy scenario.
Under the company’s exchange offer, the holders of the 2021 senior notes will receive new 2023 senior secured notes or a combination of new notes and common equity, depending on levels of participation.
Second, in a bankruptcy scenario, iHeart would not be able to separate its media and outdoor advertising businesses — an initiative the company has said would unlock significant value.
Despite the healthier operations and cash flow of the outdoor-advertising business, the equity of that unit has been trading at steep discounts compared with its peers primarily because of its association with the broader iHeart platform, the source said. From a strategic perspective, the radio and outdoor advertising businesses do not make sense to be together, he added.
A bankruptcy filing, however, would drag out the separation for years — if the spinoff is at all possible. It would also hurt the iHeart brand and its goodwill with customers and partners, and create a drain on its value in the form of legal fees and other bankruptcy-related expenses.
In addition, much is at stake for iHeart’s private-equity sponsors, Bain Capital and THL Partners, which closed their buyout of iHeart, then known as Clear Channel Communications Inc., in 2008 for $17.9 billion.
Over the years, Bain and THL had bought iHeart debt and currently own some $1.2 billion in term loans collectively, making the firms the second largest lender to the company.
Although the loan investment turned out to be highly profitable for Bain and THL, the loans are undersecured, which would mean a more limited recovery in a bankruptcy scenario.
“I think this is a case that because of the unusual undersecured nature of the senior debt, it is not very attractive for the debtor to be in bankruptcy,” the source said.
iHeart does have coupons due in the summer. According to calculations of figures disclosed in SEC filings, the company faces a $96 million cash coupon payment on June 15 across two series of notes; another $5.6 million cash payment on July 15; and $100.8 million cash from one series of bonds and $16.8 million payment-in-kind on another on Aug. 1.
As of Dec. 31, iHeart had $845 million in cash, including $542 million at its Clear Channel Outdoor unit, pointing to net cash of about $303 million as of that date.
In February, CCO declared a dividend to its shareholders, with iHeart disclosing it has received some $254 million of the dividend as CCO’s largest shareholder. That brought iHeart’s total cash position to roughly $557 million — sufficient to cover its summertime coupon payments.
The source said he believes value can be created for both the lenders and iHeart “by negotiating what makes sense for the vast majority of the lenders.”
—Anthony Canale at sister publication Covenant Review and Matt Fuller at sister publication LevFin Insights contributed to this article.
Note: This story was first published by CapitalStructure, a sister publication to Buyouts. For more information about CapitalStructure, contact Shasha Dai at email@example.com.
Singer Jon Bon Jovi performs with his band Bon Jovi during the 2012 iHeart Radio Music Festival at the MGM Grand Garden Arena in Las Vegas on Sept. 21, 2012. Photo courtesy Reuters/Steve Marcus