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iHeart Media on verge of filing bankruptcy

March 2, 2018

Embattled iHeartMedia Inc., one of the largest radio station operators in Indianapolis, is circulating documents for a bankruptcy filing that could come as soon as this weekend for the biggest U.S. radio broadcaster.

Advisers to some of iHeart’s senior creditors have been shown bankruptcy papers that would be used on the first day of court proceedings, according to people with knowledge of the matter. Despite a year of negotiations on a restructuring plan, a formal support agreement still isn’t in place with the most-senior lenders, and the creditors aren’t in restricted talks with the company, said the people, who asked not to be identified discussing private negotiations. Creditors typically agree to restrict some of their activities in exchange for non-public information when talks heat up.

In Indianapolis, San Antonio-based iHeart owns classic rock station WFBQ-FM 94.7 and sports talker WNDE-AM 1260, in addition to  alternative rock station WOLT-FM 103.3 and hip-hop station WZRL-FM 98.3.

It would be the second major radio player in the Indianapolis market to seek bankruptcy protection in recent months. In November, Atlanta-based Cumulus Media filed for Chapter 11 protection. In Indianapolis, it owns country powerhouse WFMS-FM 95.5, as well the classic hits station WJJK-FM 104.5 and the top 40 station WRWM-FM 93.9.

Many radio station operators, including Indianapolis-based Emmis Communications Corp., have wrestled with excessive debt stemming from stations they acquired in the 1990s at lofty prices.

Radio advertising revenue has been under pressure for years amid the rise of digital competitors and more platforms for accessing music.

An iHeart bankruptcy filing is all but certain, with the company and creditors each swapping proposals in recent weeks for a consensual restructuring. But pressure is mounting on iHeart after it missed a Feb. 1 interest payment, with a 30-day grace period about to run out. On top of that, the broadcaster on Thursday skipped payments on two more sets of bonds. If the company files without a pre-negotiated restructuring plan in place, the bankruptcy could turn into a free-fall, with some of the biggest and most contentious specialists in distressed companies potentially tussling for years over about $20 billion of debt.

Billionaire John Malone’s Liberty Media stepped in with a last-minute offer to senior creditors that would help salvage iHeart by injecting cash and financing a trip through bankruptcy, but analysts have said the bid isn’t high enough to win over creditors. Still, talks remain fluid and ongoing between the secured creditor group and Liberty Media, according to the people.

Liberty has already bought a substantial position in iHeart debt and sees potential synergies between iHeart and SiriusXM radio, Liberty CEO Greg Maffei said Thursday on a call with investors. iHeart runs the biggest land-based radio network with about 850 stations and Sirius has the largest satellite radio network.

Wendy Goldberg, a spokeswoman for San Antonio, Texas-based iHeart, declined to comment.  iHeart is controlled by Bain Capital and Thomas H. Lee Partners, which staged a leveraged buyout in 2008. The senior creditor group is advised by investment bank PJT Partners and law firm Jones Day. Representatives for those firms declined to comment or didn’t provide an immediate response. Liberty spokeswoman Courtnee Chun didn’t immediately provide comment; the company is advised by investment bank Millstein & Co. and law firm Weil Gotshal & Manges.

Active talks still continue with lenders, noteholders and financial sponsors, iHeart said in a regulatory filing that disclosed the latest skipped payments. Negotiators have narrowed many of their differences, with the two sides swapping increasingly similar plans for a bankruptcy. But a deal has been held up by the insistence of iHeart’s private equity sponsors on retaining a stake in the reorganized company.

Meanwhile, iHeart and creditors are positioning themselves for what could come after a the bankruptcy filing, with the company disclosing a bonus plan for CEO Bob Pittman and junior bondholders controlling more than $200 million of unsecured debt suing in a New York state court. They’re accusing iHeart of secretly using assets for years to secure other borrowing. The suing bondholders include funds run by Angelo Gordon & Co., a distressed-debt investor that had been accumulating shares of iHeart’s billboard advertising company, Clear Channel Outdoor Holdings Inc.

IHeart’s 14 percent bonds due 2021 fell 0.75 cents to trade at 12.25 cents on the dollar Thursday, according to Trace bond-price reporting. The shares fell 12 cents to trade at 43 cents a share at 12:44 p.m. in New York.

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