Even as I write this, iHeartMedia has retained debt advisor PJT Partners to help them with a reorganization bankruptcy – their second – because increasingly the company exists for essentially making debt payments, not enterprise growth.
- Wall Street has a term for companies that can only make debt payments – zombie companies.
- Audacy and Cumulus were also zombies before they filed for bankruptcy and there are other second tier radio groups in the same situation.
- BUT, iHeart has something major up their sleeve to survive the company’s growing and untenable debt.
Trouble looming
- Q2 adjusted EBITDA was down 21% to $150 million with first half adjusted EBITDA coming in at $254 million.
- Free Cash Flow was down a whopping 84% to just $5.6 million in Q2— that’s considered a red flag.
- Wall Street estimates for full-year adjusted EBITDA of $745 million seem unrealistic.
- They are more likely to be closer to $600 million.
Then there’s the debt
- Annual interest expense is running at $385 million with CapEx running at $175 million.
- iHeart needs to generate close to $600 million in cash EBITDA to keep from tapping into their $364 million of cash on the balance sheet.
- iHeart debt is trading at a steep discount which implies the debt holders feel another restructuring is in the cards which with the June hiring of PJT Partners is a good bet.
- iHeart continues to use its enormous scale to outperform the other public radio groups, but absent a reversal in the current trend of declining revenue and stubbornly high expenses, they are being forced to once again address the $5.2 billion of debt remaining on their balance sheet.
- Notable: iHeart’s first bankruptcy took the debt down from under $20 billion to about $6 billion so even after they emerged, they were banking on a second bankruptcy to offload more debt.
What to expect
- Two weeks of layoffs underway right now are part of the process that iHeart uses when the wheels come off – they will aggressively keep cutting costs in advance of making deals with the lenders who can help them most to the detriment of other lenders.
- This time watch for iHeart to screw their second-lien lenders out of their investments by making a privileged deal with PIMCO to cut them out of the voluntary restructuring deal which has now begun.
- What they’re saying: Bloomberg -- Creditor-on-creditor violence – lenders fighting over how much money they can preserve turning on other creditors to get the best deal.
- Other debtholders are likely to see the brutality of iHeart as it fights for survival at the expense of anyone in their way.
The bottom line: Radio’s most predatory owner is about to turn on their lesser investors to claw their way to a reorganization that buys them a neatly designed second bankruptcy.
PUBLISHING NOTE: Cheryl and I are going to take a few days off to recharge our batteries before NYU resumes classes in a few weeks and the music/media space heats up once again. This seems like a good time. Thanks for being part of our group that cares about radio, media and the music industry. See you in a few days -- Monday August 26.
Jerry Del Colliano is a professor at NYU Steinhardt Department of Music and Performing Arts Professions Music Business Program. His background includes Clinical Professor of Music Industry at the University of Southern California, TV, radio, program management, publishing and digital media.
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