Interesting Cumulus Rumors

[RoddyFreeman]

Columnist Jerry Del Colliano has been writing a couple of interesting rumors:

1. Cumulus could be in bankruptcy by December 1.
2. Former Cumulus CEO Lew Dickey is looking to take over the company from the people who ousted and humiliated him.

These are just rumors, and Jerry is not always right. But, we do know Cumulus "chose" not to make their November interest payment, and that they have so far not come to a restructuring agreement with their lenders.

Interesting times.

 

[gr8oldies]

3. Cumulus is buying CBS. Oh, wait.

 

[TheBigA]

These are just rumors, and Jerry is not always right.

That's the understatement of the century.

My take on the SEC filing is that there's a battle going on for the company between Crestview Partners and the Dickeys. The company is trying to oust the Dickeys from the board, and their proposal would replace them with new board members. Lew doesn't have the votes to take back control, but he has enough votes to cause trouble. They chose not to make the November payment to show they're serious. They want to have this entire situation settled by the end of the year. If they're successful at restructuring the company and getting rid of the Dickeys, they have a plan ready to move forward and operate profitably. They hope their plan is enticing enough to get everyone else on board. But if not, they're willing to let it go to court.

The November payment is for a wholly owned Cumulus subsidiary, not the entire company. So they might do a partial bankruptcy, which would be a bankruptcy of the subsidiary. If I remember correctly, that was a part of the company Lew started to buy stations outside of Cumulus, that included Susquehanna.

One other interesting part of the filing was the $350 million bondholder buy-in. So perhaps if Lew wants to get back into control, he might pay that amount. Not sure if that's exactly what the company would like to see, but they threw that out there for a reason, and it seems to be an unusual part of the filing.

 

[wavo]

That's the understatement of the century.

My take on the SEC filing is that there's a battle going on for the company between Crestview Partners and the Dickeys. The company is trying to oust the Dickeys from the board, and their proposal would replace them with new board members. Lew doesn't have the votes to take back control, but he has enough votes to cause trouble. They chose not to make the November payment to show they're serious. They want to have this entire situation settled by the end of the year. If they're successful at restructuring the company and getting rid of the Dickeys, they have a plan ready to move forward and operate profitably. They hope their plan is enticing enough to get everyone else on board. But if not, they're willing to let it go to court.

The November payment is for a wholly owned Cumulus subsidiary, not the entire company. So they might do a partial bankruptcy, which would be a bankruptcy of the subsidiary. If I remember correctly, that was a part of the company Lew started to buy stations outside of Cumulus, that included Susquehanna.

One other interesting part of the filing was the $350 million bondholder buy-in. So perhaps if Lew wants to get back into control, he might pay that amount. Not sure if that's exactly what the company would like to see, but they threw that out there for a reason, and it seems to be an unusual part of the filing.

Any thoughts on what Lew might be planning with his $250M in dry powder?

 

[TheBigA]

Any thoughts on what Lew might be planning with his $250M in dry powder?

We may find out soon.

 

[wavo]

We may find out soon.

How exactly would a $350M bondholder buy-in work so as to allow Lew to regain control?

 

[TheBigA]

How exactly would a $350M bondholder buy-in work so as to allow Lew to regain control?

I'm not exactly sure, but the SEC filing says the unnamed bondholders would contribute $350 million to buy down the debt in exchange for equity and seats on the board.

I don't know if Lew is considered a bondholder. My understanding is his original agreement was that he wasn't. Owning stock doesn't make you a bondholder.

http://www.insideradio.com/cumulus-...cle_5a021dd8-c91e-11e7-94ac-43eeeb92cd93.html

 

[wavo]

I'm not exactly sure, but the SEC filing says the unnamed bondholders would contribute $350 million to buy down the debt in exchange for equity and seats on the board.

I don't know if Lew is considered a bondholder. My understanding is his original agreement was that he wasn't. Owning stock doesn't make you a bondholder.

http://www.insideradio.com/cumulus-...cle_5a021dd8-c91e-11e7-94ac-43eeeb92cd93.html

Lew Sr., Lew Jr., and John used to own most of the super-voting shares in Cumulus. Who now holds the super-voting Cumulus shares?

 

[TheBigA]

Lew Sr., Lew Jr., and John used to own most of the super-voting shares in Cumulus. Who now holds the super-voting Cumulus shares?

I don't think that's changed. They're listed in the article I linked above as among those who have to approve the plan. Crestview Partners, the investment company that ousted Lew and replaced him with Mary Berner, holds the largest share.

 

[secondchoice]

Basic Bankruptcy Law: If a company file chapter 11 the Court appointed trustee is charged with getting the creditors paid while salvaging the profitable parts of the company. In a perfect world after the creditors are satisfied and paid off the company is "returned" to the original owners or shareholders. The majority of the bankruptcies with a publicly held companies have a pre-bankruptcy deal cut between creditors that assures the CEO and top officers continues to get paid or their golden parachute is preserved. IMHO this should be illegal. Upper management should get the same treatment and the rank and file, but that is another thread.

In the real world if Cumulus takes an 11, the common stock will end worthless. It would be better financially for the Common Shareholders if the debt was exchanged for stock. Watered down stock is better than nothing.

 

[TheBigA]

Upper management should get the same treatment and the rank and file, but that is another thread.

Legally the rank & file have no responsibility for anything. They just did what they were told. Upper management is legally responsible. In the case of this particular company, the current management didn't create the debt. They just were the ones who handled it, with the advise & consent of the board. There are lots of employees at Cumulus who went through the Citadel bankruptcy. So it's likely the employees will survive whatever financial & legal deal is worked out this time. The only real losers are the stockholders.

 

[jabba17]

Basic Bankruptcy Law: If a company file chapter 11 the Court appointed trustee is charged with getting the creditors paid while salvaging the profitable parts of the company. In a perfect world after the creditors are satisfied and paid off the company is "returned" to the original owners or shareholders. The majority of the bankruptcies with a publicly held companies have a pre-bankruptcy deal cut between creditors that assures the CEO and top officers continues to get paid or their golden parachute is preserved. IMHO this should be illegal. Upper management should get the same treatment and the rank and file, but that is another thread.

In the real world if Cumulus takes an 11, the common stock will end worthless. It would be better financially for the Common Shareholders if the debt was exchanged for stock. Watered down stock is better than nothing.

Usually the existing common stock is wiped out and new common stock is issued representing the assets of the company as a going concern (vs. cash generated via a Chapter 7 liquidation) and used to satisfy outstanding debts that can't be satisfied by cash on hand or the partial sale of undesired assets that are spun off.

There have been cases where the existing common stock is cashed out to the existing shareowners for pennies on the dollar vs. being completely wiped out, if sufficient assets exist to fully satisfy everyone else first and there's some left over (typically from an asset sale and/or the proceeds of the IPO of the new common stock). That happened with MCI Worldcom. That's the exception, though.

 

[jabba17]

Lew Dickey could use cash to buy a large debt position in CMLS, particularly if the debt is distressed and selling for pennies on the dollar. That would put him, as a debtholder and not a shareowner, as a senior claimant for the estate of CMLS in a bankruptcy. Alternatively, he could wait until CMLS goes BK and then rush in with debtor-in-possession financing, which would put him even higher up the totem pole of priority claimants in the bankruptcy. That would be a way for Lew Dickey to possibly regain control of CMLS when the new stock is issued (depending on what percentage of the IPO of the new Cumulus stock he gets in exchange for the debt), and provide a way for CMLS to unload their obligations (see below) so the "new" CMLS isn't burdened with them.

The losers would be the existing common stock owners of CMLS, anyone with a valuable contract with Cumulus, and the most subordinated debtholders.

Is Cumulus Media Partners (the entity that bought out Susquehanna and apparently skipped a debt payment per TheBigA) wholly owned by Cumulus, fully merged into Cumulus, or are there multiple owners? I'd like to know how Cumulus and CMP are structured with regards to each other. If CMP is incorporated separately and hasn't been merged into Cumulus, then that makes things more interesting because CMP (and not Cumulus) could declare bankruptcy and Dickey could do the above with CMP vs. Cumulus as a whole, which would be less expensive but still a way to gain control of a significant block of stations. Not sure what the angle is there for Dickey, though, unless he wants to simply wrest control of CMP from Cumulus (and give himself a nice little radio company, basically the old Susquehanna Radio). He could be a real pest to Cumulus if he did that, depending on the interrelationship between Cumulus and CMP.

FWIW, this is how it possibly affects Q100. WWWQ and WNNX (the old Susquehanna stations) are owned by an entity called Radio License Holding SRC, LLC, while WKHX and WYAY (the old Disney/Citadel stations) are owned by an entity called Radio License Holding, LLC. If these are two separate entities (with CMP owning the former and not the latter), Dickey could break up the Atlanta cluster by taking the two Susquehanna legacy stations, if RLH SRC is a CMP entity and RLH is not.

Interestingly, the entity that owns the two translators is Cumulus Licensing LLC, a third entity.

Does anyone have a map handy on how Cumulus is structured? I may have to go dig up their annual report.

 

[TheBigA]

Is Cumulus Media Partners (the entity that bought out Susquehanna and apparently skipped a debt payment per TheBigA) wholly owned by Cumulus, fully merged into Cumulus, or are there multiple owners? I'd like to know how Cumulus and CMP are structured with regards to each other.

The term they use is "wholly owned subsidiary." Which is the same term used for several other entities under the Cumulus umbrella.

 

[secondchoice]

Cumulus has "forgotten" about their share holders:

https://radioink.com/2017/11/22/cumulus-delisted-nasdaq/

IMHO when you say "absolutely no impact" that means they really don't care about the share holders. The shareholders still own the business (for now). Anything that impacts the shareholders "negatively" should be a concern if you plan on being around after the next shareholders meeting. Here is a quote from the story:

'The company said, “other than being on a different exchange, this has absolutely no impact on our business.”

I can only guess that they don't feel they have to worry about concerns for the shareholders because they will be "gone" soon.

Ask any ethical stockbroker or adviser, if getting delisted will help the value of the stock.

 

[davideduardo]

'The company said, “other than being on a different exchange, this has absolutely no impact on our business.”

In think the point here is that the stock price or listing does not affect the day to day operations of the business of broadcasting itself. It has no impact on ratings, programming, sales, etc.

This is an investor issue, not an operational one that will be reflected in the product.

It's obvious that Berner was brought in to tune up the operations as best as she could, so that the best possible face could be put on the ongoing operation as they worked on a pre-packaged bankruptcy. Given the station assets, it seems unlikely that anyone was thinking that the company could be turned around enough to cash flow enough to service existing debt, so a Chapter 11 deal had to have been on the boardroom table since Berner arrived.

A board is indeed protecting shareholders if they prevent a total wipe-out of share value; a pre-packaged bankruptcy can be structured to give equity to lenders, while preserving some of existing shareholder value. It's better than liquidation, where shareholders finish last.

 

[davideduardo]

Lew Dickey could use cash to buy a large debt position in CMLS, particularly if the debt is distressed and selling for pennies on the dollar. That would put him, as a debt holder and not a share owner, as a senior claimant for the estate of CMLS in a bankruptcy.

The problem here is that, while the debt may be discounted, it's not going to go at this time for pennies on the dollar as the lenders know that the business itself is profitable, but the assets are devalued. There is $3 billion in outstanding debt, and the major asset that Lew has is, well, Cumulus shares. There is no way he is going to come up with enough money to control the company, even with the mysterious private equity funding he has put together

 

[TheBigA]

Ask any ethical stockbroker or adviser, if getting delisted will help the value of the stock.

It's very obvious that there was no value in being listed on the exchange. There has been very minimal activity in the stock over the past year or so. There's an expense associated with that as well. So there's no point in remaining on the exchange. They won't get above $1 without eliminating the debt.

 

[secondchoice]

According to the cloud company’s website they had an EBITDA of $167.9 million*. Assuming they do at least as well the last quarter (they should do better) Cumulus should have an annual EBITDA of at least $266.6 for the year.

After Bankruptcy If ALL of the long term debt was converted into stock, the worst possible tax bill is (38.92 percent) 39% you still have $162.6 million. The tax bill will be a lot less because the depreciation would be “reset” with the “new” company. The lowest P/E ratio for media companies I have seen lately is 15 times earnings*, which gives you a value of around $2.439 billion. A private cash investor would expect at least a 10% return on his money: $1.626 Billion, so I doubt that will happen.

Cumulus has a debt of $2.4 billion.*** I doubt the lenders want in the radio business but if you loan money to business you have to be willing to take possession when things go south. It is up to the lenders to figure out whether:

#1 Take a big haircut on their holdings (over 40%)
#2 Takeover Cumulus and start selling off clusters
#3 IMHO the best would be to “buy” the Cloud Company with their debt. Recapitalize / reincorporate Cumulus and hope the new stock becomes worth more than what they would get otherwise.

* https://www.cumulus.com/investors/
** https://csimarket.com/Industry/industry_valuation_ttm.php?pe&ind=902
*** http://www.insideradio.com/free/cum...cle_18d1aa0c-a74c-11e7-8113-b78adfb00caf.html

IMHO: I really do not see anyone really wanting to lend Cumulus money. Cash flow will become "king" in this deal.

 

[TheBigA]

IMHO: I really do not see anyone really wanting to lend Cumulus money. Cash flow will become "king" in this deal.

Well someone lent them money to buy a bankrupt company (Citadel). That's how they got this debt.

Their biggest creditor is driving the ship. There's some reason why they're trying to solve this situation by the end of the year. I don't know what the reason is, but they seem focused on resolving it now.