The radio industry has seen a few bankruptcy filings through the years but this is colossal. iHeartMedia on Wednesday night filed a Chapter 11 petition with bankruptcy court in Houston, Texas, saying it has reached an agreement in principle with lenders that will erase more than $10 billion in debt.
The San Antonio-based iHeartMedia listed $12.3 billion in total assets and $20.3 billion in debt in paperwork filed late Wednesday with the U.S. Securities and Exchange Committee. Analysts have long said iHeartMedia has a solid business model but could likely not survive its overwhelming debt. The company’s financial unbalance began in 2008 when private equity groups Bain Capital and Thomas H. Lee Partners purchased Clear Channel Communications in a highly leveraged deal valued at about $24 billion.
The company’s press release announcing the filing said it has enough cash on hand to fund business operations throughout the Chapter 11 proceedings: “To implement the balance sheet restructuring contemplated by the agreement in principle, iHeartMedia and certain of its subsidiaries, including iHeartCommunications, Inc., have filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas.”
iHeartMedia, which has spent months in active negotiations with its lenders and noteholders to restructure debt, says it reached an agreement in principle with holders of more than $10 billion of its outstanding debt and its financial sponsors. “The agreement reflects widespread support across the capital structure for a comprehensive balance sheet restructuring that will reduce iHeartMedia’s debt by more than $10 billion.”
The radio conglomerate employs over 14,000 workers and has about 850 radio stations. A total of 35 iHeartMedia affiliated companies filed for Chapter 11 reorganization on Wednesday, including Katz Media Group, Premiere Networks and Total Traffic & Weather Networks. All cases are expected to be jointly administered in bankruptcy court.
iHeartMedia also owns 90% of billboard subsidiary Clear Channel Outdoor Holdings, which did not file a Chapter 11 case. iHeartMedia has been looking for a buyer for its billboard business.
Chairman and CEO Bob Pittman said in a press statement: “The agreement we announced (Wednesday) is a significant accomplishment, as it allows us to definitively address the more than $20 billion in debt that has burdened our capital structure. Achieving a capital structure that finally matches our impressive operating business will further enhance iHeartMedia’s position as America’s #1 audio company.”
The agreement with lenders probably doesn’t leave much for current owners Bain Capital and Thomas H. Lee Partners, which had controlled 68 percent of the voting stock of iHeartMedia. In fact, it likely nearly wipes out the equity stakes of the pair, analysts say. iHeartMedia’s most recent proposal would have given holders of secured loans, who are owed nearly $13 billion, about $5.6 billion in new debt and 94% of the equity in a reorganized iHeartMedia.