Interesting Cumulus Rumors

[MediaMan]

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.

From industry trades....the problem is Cumulus is barely generating enough cash flow to pay just interest on debt. They missed the November payment and have until Friday to cure the default. Another trigger is Cumulus has been leasing a couple Chicago stations and now have to buy them based on a contracted price of $50 million which would wipe out their cash on hand.

Lew Dickey announced a few months ago he has a $250 million line of credit/investment company which he can leverage into a much higher amount but has never identified what he planned to do with the commitment. The folks lending him the money, reportedly, are also invested in Cumulus. Folks can criticize how he ran the company, etc. but he never missed a payment and actually paid down some of the debt even during the Great Recession.

It is widely suspected in the radio industry Lew will attempt a take back of the company after it goes bankrupt.

As with any company, it's wise to file bankruptcy while you still have enough cash on hand to keep the doors open.

The debt bell will tole for iHeart in 2018 when they have several billion of their $20 billion debt due. Its senior debt, too.

Radio industry leaders believe in the long run, it will be good for radio when both of these companies are shed their immense debt loads.

 

[RoddyFreeman]

From industry trades....the problem is Cumulus is barely generating enough cash flow to pay just interest on debt. They missed the November payment and have until Friday to cure the default. Another trigger is Cumulus has been leasing a couple Chicago stations and now have to buy them based on a contracted price of $50 million which would wipe out their cash on hand.

Lew Dickey announced a few months ago he has a $250 million line of credit/investment company which he can leverage into a much higher amount but has never identified what he planned to do with the commitment. The folks lending him the money, reportedly, are also invested in Cumulus. Folks can criticize how he ran the company, etc. but he never missed a payment and actually paid down some of the debt even during the Great Recession.

It is widely suspected in the radio industry Lew will attempt a take back of the company after it goes bankrupt.

As with any company, it's wise to file bankruptcy while you still have enough cash on hand to keep the doors open.

The debt bell will tole for iHeart in 2018 when they have several billion of their $20 billion debt due. Its senior debt, too.

Radio industry leaders believe in the long run, it will be good for radio when both of these companies are shed their immense debt loads.

In iHeart's case, the lenders probably will resolve things by gaining equity. If they own enough equity to control the company, Pittman and Bressler could very well exit and are likely working on golden parachutes.

If all of this happens, I wouldn't be surprised to see new management shed some of the stations, probably in small and medium markets. (I would like to see that happen.)

 

[RoddyFreeman]

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.

Cumulus's big debt is really a result of the Susquehanna acquisition. That put Cumulus in a situation where everything had to go exactly right. Then came to Great Recession, and radio billings fell dramatically.

After emerging from bankruptcy, Citadel's debt was pretty much wiped out. Acquiring Citadel actually diluted Cumulus's debt at the time. But yes, the price of Citadel was added to the Susquehanna purchase debt.

 

[TheBigA]

Acquiring Citadel actually diluted Cumulus's debt at the time. But yes, the price of Citadel was added to the Susquehanna purchase debt.

The cost of acquiring Citadel was $2.5 billion. Susquehanna was $1.5 billion. But if they bankrupt CMP, which holds the Susquehanna debt, that will do a lot to clear up the Cumulus debt.

 

[davideduardo]

It is widely suspected in the radio industry Lew will attempt a take back of the company after it goes bankrupt..

How? The most likely scenario is the trade of debt for equity, which involves the existing investors and lenders. Only if a significant investor will sell their debt to Lew for about $.10 on the dollar could $250 million be parlayed into a controlling equity position.

And this is without analyzing the thing that got Cumulus to where it is, which is the combination of the Susquehanna and the Citadel deals. And those deals have "Lew" written all over them.

 

[RoddyFreeman]

How? The most likely scenario is the trade of debt for equity, which involves the existing investors and lenders. Only if a significant investor will sell their debt to Lew for about $.10 on the dollar could $250 million be parlayed into a controlling equity position.

And this is without analyzing the thing that got Cumulus to where it is, which is the combination of the Susquehanna and the Citadel deals. And those deals have "Lew" written all over them.

MediaMan is describing the Jerry Del Colliano scenario. Jerry is saying Mary Berner wants to do a prepackaged bankruptcy but that Lew Dickey, who owns the second largest group of shares, will exercise a right to not allow Mary's proposal to be presented to the lenders. According to Jerry, that will put Cumulus in the hands of a judge, and Lew Dickey will then plan to regain control through one or more initiatives. According to Jerry, the lenders like Lew, and he has access to far more that the $250 million that he already has in hand.

I do not profess to know if any of this makes sense, but the next days, weeks and months should be interesting.

 

[MarkW]

How? The most likely scenario is the trade of debt for equity, which involves the existing investors and lenders. Only if a significant investor will sell their debt to Lew for about $.10 on the dollar could $250 million be parlayed into a controlling equity position.

And this is without analyzing the thing that got Cumulus to where it is, which is the combination of the Susquehanna and the Citadel deals. And those deals have "Lew" written all over them.

I agree 100% that Lew stinks and is primarily responsible for the miserable position in which Cumulus currently finds itself financially.

Yes, he made debt curtailments in the past. So what. There's still $2.3 billion in funded debt that remains unpaid. Cash flow leverage ratios for Cumulus are in excess of 11x !!! Enterprise values for major broadcast corporations are probably running in the 6x to 7x range. That means the debt load should only be 4x or 5x EBITDA.

That being said, there ARE ways that Lew & friends could effectuate a controlling stake in Cumulus under a chapter 11 scenario. His new company could secure a commitment for exit financing, for example, that would refinance the pre-petition senior secured debt (say, at 60 cents on the dollar + some equity), give the bond holders a minority slice of the equity (supposedly, most of the bond holders are "friendly" parties any way), and make Lew's new company effectively the new Parent of Cumulus. Under such a scenario, Lew & his friends would throw $250 million in subordinated debt or equity capital into the mix.

Another way for Lew to assert control over the company's future direction would be to use some portion of the $250 million to provide DIP financing. As some of you already know, post-petition DIP lenders are automatically granted priming liens over pre-petition secured debt in U.S. bankruptcy. Lew could use this as leverage, at minimum, to negotiate the removal of Berner and Marcus and return to the throne, so to speak. I personally think he's out for blood and probably loathes Mary Berner and Crestview.

Of course, the only "throne" Lew should be occupying, in my view, is the toilet. It's where he belongs since that's where he took the family's business as a result of his mismanagement and immense ego.

 

[secondchoice]

I personally believe that Lew will have to convince the large lenders that he is “the only hope” to get back a large part of their money. His fund’s $250 million is about 10% of the debt. I doubt the lenders will accept this when they could have the post-tax monies of $167+ million a year just taking possession, and setting up an LLC that will send the cash proportionally to the creditors. In two years they should have at least $334+ million cash returned to them. I am sure that current Cloud Company management and their bankruptcy lawyers will be able to line up any required short term financing via Bankruptcy and the US taxpayers being “cosigners” without Lew and company.

If Lew could raise a billion the lenders might take 40% to get this non preforming investment off the books. That would be a steal. A billion dollar investment with an after tax return of $167 million is 16+% return. That would be attractive to a lot of folks.

Side note: It was refreshing for Mary to state that some of the programming cuts reduced sales more than “savings” of the cut. Commercial broadcasting is different from most businesses in that your customers are not your listeners.* I know that drives some accountants and investors crazy. Cumulus & Citadel both have proven that you cannot always cut expenses to improve profitability. Sometimes you have to increase billings by delivering a larger audience that someone is willing to pay bigger bucks to advertise too. That might mean paying more for better talent and support personnel, instead of figuring out how many folks you can lay off.


* except for per inquiry and paid programing.

 

[TheBigA]

That might mean paying more for better talent and support personnel, instead of figuring out how many folks you can lay off.

Or making deals for talent that aren't strictly salary & benefits. The problem with radio is being on the air became just a job that you show up for, rather than being part of a team. So its important that talent realize they are part of the pitch to advertisers, and they represent the station to the audience. So if you're on-air, you're likely part of online as well, and you're doing endorsements for local advertisers, something the national hosts can't always do.

 

[jabba17]

Looks like Cumulus pulled the trigger today:

https://www.allaccess.com/net-news/...th-lenders-files-for-chapte?ref=mail_bulletin

They are not asking for DIP financing.

 

[TheBigA]

Everyone knew it was coming soon, most likely by the end of the week. Stopping payment got everyone's attention. There seems to be a reason why they wanted to handle this so quickly. Perhaps there are buyers in the wings. Perhaps Lew wants to buy back a piece of his company. No one knows, since there's very little in the press release. Now they can begin to move forward.

 

[MarkW]

There are inaccuracies in the article posted to the home page of RadioInsight.com.

First of all, only lenders representing 69% of the Term Loan exposure have entered into RSAs. Nothing I've read elsewhere (including Cumulus' own PR) suggests the requisite percentage of bond holders have entered into RSAs. This leaves the door open for that class of creditors to challenge the Plan that will be presented in court by Cumulus as part of first day motions.

Second, chapter 11 bankruptcy *is* a "debtor in possession" proceeding. To say, a prepack proposal allows "debtor in possession" situation to be avoided makes no sense at all. Perhaps what should've been written by R-I is that Cumulus executive management sees no need for debtor in possession financing. The company says it has plenty of cash on hand; publicly, no proof has been provided of that.

Will be interesting to see what becomes of the WLUP/WKQX transaction. Apparently, the $45 million to $50 million in cash due Merlin Media has not yet been forked over. Bankruptcy can void that transaction, if desired by Cumulus.

The $1 billion in debt reduction, presumably, will occur via cancellation of the bond debt ($610 million) and pay down or partial forgiveness of the senior secured term debt. To the extent the Term lenders are receiving a cash pay down, I would be curious to know the source(s) of that capital. Crestview? Or did Cumulus' executive management make a deal with the devil himself (Lew Dickey)?

 

[RoddyFreeman]

My understanding is that Cumulus traded debt to the lenders for equity, and that the lenders will have control of Cumulus. This is leading to speculation that after the company emerges from Chapter 11, it could be sold.

 

[secondchoice]

It appears they have enough cash on hand to pay everyone. Using their EBITDA they made 167.9 million the first three quarters after paying the help, rents, and expenses required for continuing / regular operations. That is about $18.6 million a month profit before taxes. Worst possible case tax wise is the 38.9 % (39%) corporate bracket. That leaves around $11.37 million a month. Depreciation and amortization are really just “tax” figures but will decrease the tax bill. Legal fees should be under $2 million a month. They are not paying any debt.

IMHO Cumulus does not need “outside” financing at this time. The 31% of the lenders not in the agreement are roughly $744 million. Most likely they will be offered a payment of around $300 million. They could “legally” be forced take a write-down by court order from the bankruptcy judge. Cumulus’s EBITDA is over $260 million a year. After worst case after taxes is $162 million. If the cloud company stays in Bankruptcy in two or three years they could raise over $300 million. Should Cumulus need to borrow short term money, once the Judge signs off on the request they will have the backing of the US taxpayers and there will be folks that will lend the money on a “sure bet”.

Also since the stock goes away, Cumulus does not count against Dickey in market station caps. He can buy anything he can afford in Atlanta. If the Clear Channel / IHeart deal goes to Chapter 7 he could bid in the Atlanta cluster if he gets rid of one AM.

I agree with Roddy in a couple of years there will be a “new” Cumulus. Hopefully will not be loaded down with debt more than 3 times EBITDA I personally would change the name.

 

[MarkW]

I disagree with your profit and EBITDA calculations.

The annualized recurring EBITDA run rate is more like $200 million to $220 million. Even if a billion in funded debt is forgiven or paid down, that leaves the company with about $1.3 billion in debt. If all or nearly all of that is non-subordinated, that still leaves the company with a pretty dicey balance sheet. You are correct that if earnings don't climb significantly, we could be looking at a "Chapter 22" in 18 to 24 months from now.

The bond payment wasn't made November 1 because the Company was too low on cash when adding in the prospect of a $50 million payment to Merlin Media for WKQX and WLUP. Will that deal be voided as part of bankruptcy?

 

[secondchoice]

It is a common stragity not to pay bills the month(s) going into bankruptcy. Cash is one measure the Judge will look at. I got the numbers the EBITDA from Cumulus’s website.* $167.9 Million first 3 quarters divided by 9 equals $18.65 Million a month or $223 Million a year cash before taxes. The big lenders representing 69% of the stock are now shareholders. There is (only) $744 million left. They will not get all of their money back. After the 31% debt holders get screwed, there will be virtually no debt for Cumulus.

The Chicago deal should go thru or else Cumulus should sell WLS AM and FM. Three FM signals in market #3 is worth more than $50 million. Cumulus legally could kill the deal but they would be stupid to do so.


*After Authur Anderson nobody in there right mine would publish bad accounting data. https://www.cumulus.com/investors/

 

[MarkW]

The big lenders representing 69% of the stock are now shareholders.

Wrong.

No equity in "New Co" has been issued yet. That doesn't occur until a confirmed plan takes effect.

Also, the plan backed by Cumulus - the same one for which 69% of term debt holders executed RSA's to memorialize their support - specifically calls for a $1.3 billion first lien senior secured term loan. So, your comment that "there will be virtually no debt for Cumulus" is entirely without merit, and frankly, could not be more wrong.

I suggest visiting this link and scrolling to page 94:
http://document.epiq11.com/document/getdocumentbycode/?docId=3220481&projectCode=CUI

 

[PTBoardOp94]

The Chicago deal should go thru or else Cumulus should sell WLS AM and FM. Three FM signals in market #3 is worth more than $50 million.

There's a reason Merlin has been holding on to WLUP and WKQX for 5+ years since they ceased programming their flagship format ("FM News") and for 4 years under an LMA to Cumulus. No willing buyers. Keeping in mind that Merlin paid Emmis $130 million for those two stations plus WFAN-FM in New York in 2011.

Also, a secondary reason: Cumulus probably purchased a right of first refusal in their LMA agreement. But thats speculation on my part.

 

[davideduardo]

There's a reason Merlin has been holding on to WLUP and WKQX for 5+ years since they ceased programming their flagship format ("FM News") and for 4 years under an LMA to Cumulus. No willing buyers. Keeping in mind that Merlin paid Emmis $130 million for those two stations plus WFAN-FM in New York in 2011.

Also, a secondary reason: Cumulus probably purchased a right of first refusal in their LMA agreement. But thats speculation on my part.

The sale by Emmis was valued at $198 million, as it included an equity stake as well as Emmis retaining 20% interest in the stations.

 

[secondchoice]

Wrong.

No equity in "New Co" has been issued yet. That doesn't occur until a confirmed plan takes effect.

Also, the plan backed by Cumulus - the same one for which 69% of term debt holders executed RSA's to memorialize their support - specifically calls for a $1.3 billion first lien senior secured term loan. So, your comment that "there will be virtually no debt for Cumulus" is entirely without merit, and frankly, could not be more wrong.

I suggest visiting this link and scrolling to page 94:
http://document.epiq11.com/document/getdocumentbycode/?docId=3220481&projectCode=CUI

Thanks for the actual filing. I was just reading press releases. You would think a media company could handle information better.

If I read it correctly the first term holders are getting 83.5% of the new stock plus their (new) loan has the requirement of any unencumbered cash over $35 million goes to pay their debt when they emerge from bankruptcy. If I am reading Annex B under Mandatory prepayments paragraph (vi) starting in 2019 75% of the free cash goes to pay the debt. Technically there is no stock now but there will be “new” stock which the lenders will own 83+%.

Am I correct in saying:

The lenders get $1.3 Billion of their debt reaffirmed.
Guaranteed payments of 75% of Cumulus' EBITDA after 2019
and they control of the company too.

If so:

The lenders now are effectively are in debt to themselves. The lenders are now in the radio business.