This story has been updated to reflect a change in the deadline.
The largest U.S. radio broadcaster has until March 12 to finalize details on a reorganization plan with creditors that would wipe out most if its debt in bankruptcy. It would also, in return, almost completely wipe out the equity stakes of current owners Bain Capital and Thomas H. Lee Partners.
The latest proposal pitched by iHeartMedia Inc. and filed with the U.S. Securities and Exchange Commission trims the highly leveraged company’s debt from just over $20 billion to about $5.8 billion under the terms of Chapter 11 bankruptcy reorganization.
The broadcaster, which owns 850 radio stations, also hopes to spin off Clear Channel Outdoor Holdings, its billboard subsidiary, as part of the debt restructuring. According to those familiar with the pending prepackaged agreement, it gives secured creditors about 93 percent of a restructured iHeartMedia.
iHeartMedia is perched on the precipice of default after it missed several interest payments since the first of the year. That triggered an accelerated payback of approximately $15 billion in loans and bonds. iHeartMedia signed a “forbearance agreement” with stakeholders last weekend that put a halt to the default process. The current agreement could even be extended after tonight’s set expiration to allow for more negotiation time.
Meanwhile, Liberty Media, the owner of SiriusXM, is making a last-ditch play for iHeartMedia. The offer, first disclosed in late February, would give Liberty Media about 40% of a restructured iHeartMedia in turn for $1.16 billion. Those familiar with the latest developments say Liberty Media is especially interested in iHeartMedia’s streaming product. It should be noted that Liberty Media made a $480 million investment in Pandora in 2017.
Financial analysts have long warned of danger over iHeartMedia’s 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. That was about the time the U.S. economy was seesawing on its way into a deep recession.
The strategy being played by iHeartMedia is similar to that Cumulus, analysts say. That broadcaster, mired in $2.4 billion of debt, filed for voluntary bankruptcy protection in November 2017 after entering into a Restructuring Support Agreement with lenders holding almost 70% of the company’s term loan. The debt-for-equity deal is expected to erase about half of Cumulus’ debt when it emerges from bankruptcy later this year.