iHeartRadio parent warns it may not survive another year
iHeartRadio parent warns it may not survive another year
Published: Apr 21, 2017 4:02 p.m. ET
Station operator is saddled with $20 billion of debt it
took with a $24 billion 2008 leveraged buyout by private-equity firms
By CIARA LINNANE
iHeartMedia Inc., the biggest operator of radio stations
in the U.S. and headed by Bob Pittman of MTV fame, plans to include language in
its next quarterly report warning investors that it may not survive another
year.
The company IHRT which owns iHeartRadio and billboard
advertising company Clear Channel Outdoor Holdings said it continues to expect
cash flow to be negative and is uncertain as to whether it will be able to
refinance or extend the maturities of some of its borrowings, according to a
regulatory filing.
The company has almost $350 million of debt coming due
this year, part of a massive $20 billion debt load it took on as part of a $24
billion leveraged buyout of then Clear Channel Communications Inc. by
private-equity firms Bain Capital and Thomas H. Lee Partners in 2008. It has
another $8.3 billion of debt coming due in 2019.
“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,” the company said in its filing with the
Securities and Exchange Commission.
iHeart’s most active bonds, the 9.00% notes that mature
in March of 2021, traded down 2 points to 75 cents on the dollar on Friday,
according to MarketAxess. Its 6.875% notes due in June of 2018 were trading at
69 cents on the dollar.
Harvard Business School Professor Bharat Anand explains
why the music industry is still strong despite the prevalence of streaming.
Moody’s Investors Service said an exchange offer in
March, in which iHeart swapped $476 million of senior unsecured notes due 2018
for senior secured priority guarantee notes due 2021, was a continuation of
iHeart’s distressed exchange.
As for its stock, shares on Friday fell 3%.
The rating agency had revised the outlook on iHeart’s
ratings to negative from stable in December, suggesting it might further
downgrade its already deep into junk Caa2 rating in the medium term. Moody’s
said at the time it expected iHeart would be forced into a debt restructuring
in the next year.
The company attempted in April to persuade its creditors
to accept a series of exchange offers that would allow it to refinance more
than $14 billion of term loans and other debt, offering new debt, equity and
ownership in Clear Channel Outdoor Holdings. After its lenders failed to take
up that offer, the company extended the deadline to late April.
“I think it will go into Chapter 11 and what will happen
is what has happened in most of these LBO cases,” said Chuck Tatelbaum,
international bankruptcy expert and senior attorney at the Tripp Scott law
firm. “The lender will take back the company as part of a Chapter 11 plan, the
other creditors will get nothing and the shareholders will be wiped out.”
iHeart, which began life as a single radio station in San
Antonio in the early 1970s, today operates more than 850 radio stations across
the U.S. But the radio sector has struggled with competition from the likes of
streaming services Pandora P and Spotify. That has pressured ad sales, which
were already on a downward track as ad dollars flock to companies like Alphabet
Inc.’s Google and Facebook Inc. that allow advertisers to target specific
markets.
The company’s efforts to increase revenue and cash flow
have largely failed. Revenue fell 2.4% in the first quarter to $1.33 billion,
while expenses rose 3%, according to the SEC filing. Operating income fell 73%
to $114 million. As of March 1, the company had $365 million of cash on its
balance sheet, including $220.6 million of cash held by Clear Channel Outdoor.
Pittman, who is widely regarded as a marketing genius,
took over as CEO in 2011, and immediately embarked on a series of moves aimed
at positioning iHeart as a modern tech company with a bright future.
In one instance, he redesigned the company’s New York
headquarters into a “Kubrickian spaceship,” as Variety magazine described it,
complete with laser displays, modular fiberglass pods and a tunnel with video
images projected into streams of mist.
Pittman brought in a new management team and embarked on
a campaign of promotional events, including the iHeart concert series, the
iHeart Radio Music Awards and lavish parties at the annual ad-industry event,
Cannes Lions International Festival of Creativity.
iHeart posted a net loss of $240 million in 2016, after a
net loss of $737 million in the year-earlier period.
”The bottom line is you have to have a profit and you
have to have sufficient cash flow to function as a company,” said Tatelbaum.
iHeart shares closed down 4.8%. The S&P ended down
0.3%.
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