Another Cumulus debt bomb?

[secondchoice]

OK I get that Mary and company are credited with “saving” Cumulus, but is Cumulus worth saving? The old note holders took a severe “haircut” during the bankruptcy. The “new” Cumulus sold some valuable FM signals that they could not manage or program earlier this year to K-Love. I get Cumulus not being able to compete in the top markets and is becoming a sub top 20 market operator. Being the “big fish in small ponds” could be profitable if you can dominate in markets 20 -120. But if you read the press release from the WABC sale, Mary has (in my mind) spouted the “company line” which is not really what is happening financially. She said: “Consistent with our financial goals, we intend to use the sale's net cash proceeds to pay down debt and invest in the Company to better serve our 250 million listeners and the advertisers who want to reach them.*

Cumulus went thru Bankruptcy and should have unloaded enough and restructure debt to be viable. IMHO working down debt is always a good thing Cumulus announced after the EMF sale and KLOS sales which together brought in $146.5 million that they had made a “voluntary prepayment of $115 million on its first lien senior secured term loan”. She also stated that they had reduced debt by $200 million since emerging from bankruptcy.** If my math is correct then Cumulus only generated $53.5 million above its regular required debt payment. Kind of a weak number but coming out of bankruptcy, but acceptable. But wait a minute, If Cumulus is retiring debt why did they takeout and “extra” $200 million during the June 12th *** note sale. Is this “lower interest money” due to their upgraded credit status and they are replacing some higher interest debt? All the statement said they increased the offering. Cumulus has around $100 million a year in “free” cash flow accord to Ms. Berner. Cumulus now has a half a billion debt bomb 6 or 7 years in the future. Will they actually use the unencumbered cash to prepay this debt or hope to find somebody to refinance? If Cumulus’s debt ($1.23 billion) goes up next quarter’s earnings statement without a significant increase in cash then I question the Cumulus business model.


*https://finance.yahoo.com/news/cumulus-media-sell-wabc-red-185313044.html
**https://finance.yahoo.com/news/first-post-emergence-cumulus-media-132000586.html
***https://finance.yahoo.com/news/cumulus-media-announces-upsizing-pricing-211716193.html

 

[invictus]

Given CMG selling to private equity, I have hard time believing the new CMG will not want to grow and could take some of Cumulus's portfolio.

 

[TheBigA]

If Cumulus’s debt ($1.23 billion) goes up next quarter’s earnings statement without a significant increase in cash then I question the Cumulus business model.

Why would the debt go up?

My view on this whole thing is they're preparing the company for sale. That's what I expect to happen in the next few years.

 

[jabba17]

Maybe Cumulus needs to go back to being a small-market operator, which is where they got their early success, primarily by being the big fish in the little ponds. From what I have read, the Dickeys have admitted that they buggered up their large-market acquisitions, trying to achieve economy of scale and reduce redundancies but cratering the sales function in the process. We may see more divestitures in the biggest markets, including Atlanta. It's hard to put those pieces back together again. Fool me twice, shame on me.

IIRC Carmike Cinemas ran into the same problem about a couple decades ago--they did well monopolizing theaters in small towns and being able to play hardball with Hollywood, but when they moved into larger markets via acquisitions that model didn't work anymore and they went broke.

If the owners want to put a nice pretty bow on the company to sell as a going concern, then yes they need to get rid of as much debt as possible and make the rest of it manageable by not making it so dependent on large payments (including any nasty balloons down the road) and cutting interest rates. If they want to turn it into a glorified LBO and part it out, then the amount of debt they take on doesn't matter until the music stops (pun not intended) and the bankers get wise to what's happening--at least those not holding the bag and tempted to throw good money after bad. Remember if you owe the bank $100K you have a problem. If you owe the bank $100MM then the bank has a problem.

 

[TheBigA]

From what I have read, the Dickeys have admitted that they buggered up their large-market acquisitions, trying to achieve economy of scale and reduce redundancies but cratering the sales function in the process.

You know the Dickeys aren't at Cumulus anymore?

 

[jabba17]

You know the Dickeys aren't at Cumulus anymore?

Yes, but the New Cumulus is still stuck with many of their mistakes. How those get corrected is up to the new management.

 

[TheBigA]

Yes, but the New Cumulus is still stuck with many of their mistakes. How those get corrected is up to the new management.

Seems to me the biggest mistake was buying Citadel. By selling off the ABC stations one by one, they're starting to correct that mistake. They still have a few more boat anchors to get rid of, including KABC and KGO.

 

[RoddyFreeman]

Why would the debt go up?

My view on this whole thing is they're preparing the company for sale. That's what I expect to happen in the next few years.

That could be, or maybe the sale of markets or groups of markets. I do agree with the person who started the thread that despite shedding some debt in bankruptcy, the current debt is too much for Cumulus to handle.

 

[TheBigA]

That could be, or maybe the sale of markets or groups of markets. I do agree with the person who started the thread that despite shedding some debt in bankruptcy, the current debt is too much for Cumulus to handle.

If that was true, the judge would not have approved the deal. It would not be in the best interests of the creditors.

Remember: The creditors own most of the company now, and they're making the decisions. And they want their money.

When Cumulus bought Citadel, they only reason it was approved was because the creditors wanted the sale, rather than leave the post-bankruptcy company in the hands of Farid Suleman. They wanted their money immediately, rather than wait for the company to repay them.

 

[davideduardo]

Will they actually use the unencumbered cash to prepay this debt or hope to find somebody to refinance? If Cumulus’s debt ($1.23 billion) goes up next quarter’s earnings statement without a significant increase in cash then I question the Cumulus business model.

You are forgetting that the owners of Cumulus today are the lenders of yesterday who took equity in exchange for the "haircut". For the most part, they owe money to themselves.

And, yes, the new financing replaces more expensive money with cheaper money. Just like a re-fi of a home.

 

[MarkW]

My view on this whole thing is they're preparing the company for sale. That's what I expect to happen in the next few years.

I agree with this statement 100%.

Even if that doesn't occur, reducing cash flow leverage is just good financial sense. Over the long-term, the cost of capital is reduced, equity will trade at better prices, and the company will have greater stamina to be able to withstand any adverse market headwinds (such as a recession).

 

[PTBoardOp94]

Cumulus' $1.2 billion term loan carries interest of 7.0% as of December 31, 2018. The new senior secured notes carry interest of 6.75%. 25 basis points doesn't sound like much, but on a $500 million amount, that's almost $3 million a month savings on interest cost.

Also worth noting. A month ago Moody's upgraded Cumulus corporate credit rating one notch to B2, including the new $500 million notes. According to its statements, Cumulus is attempting to pay down the $1.2 billion term loan early.

 

[secondchoice]

My view on this whole thing is they're preparing the company for sale. That's what I expect to happen in the next few years.

Who would buy the whole company? After the old ABC / Citadel stations are gone there still are a lot of stations left.

 

[TheBigA]

Who would buy the whole company?

A foreign company looking for inroads into US media.

The bloom is off the rose as far as US companies. Most of the radio companies are topped out.

Unless, of course, the FCC really loosens ownership rules. Which they might. Mick Mulvaney just put out a memo pushing for more deregulation all over the government. He sees it as a way to cut the federal budget.

 

[jabba17]

A foreign company looking for inroads into US media.

I thought that was still a no-no...and why Rupert Murdoch became a US citizen.

 

[TheBigA]

I thought that was still a no-no...and why Rupert Murdoch became a US citizen.

That was a long time ago. The FCC has liberalized foreign ownership rules a bit since then.

PLUS you may have missed this story: Cumulus has petitioned the FCC for 100% foreign ownership:

https://radioinsight.com/headlines/177005/cumulus-petitions-fcc-for-up-to-100-foreign-ownership/

Since then, the DOJ has asked the FCC to "defer action"

http://www.insideradio.com/free/cum...cle_8f60c548-90d6-11e9-b992-8b478fac48a8.html

So that will delay a decision for a few more months.

 

[jabba17]

That was a long time ago. The FCC has liberalized foreign ownership rules a bit since then.

PLUS you may have missed this story: Cumulus has petitioned the FCC for 100% foreign ownership:

https://radioinsight.com/headlines/177005/cumulus-petitions-fcc-for-up-to-100-foreign-ownership/

Since then, the DOJ has asked the FCC to "defer action"

http://www.insideradio.com/free/cum...cle_8f60c548-90d6-11e9-b992-8b478fac48a8.html

So that will delay a decision for a few more months.

Who do you think would buy in? Corus? (Canada Bell Telephone) Bell Media? ITV?

 

[davideduardo]

Who do you think would buy in? Corus? (Canada Bell Telephone) Bell Media? ITV?

Think Europe or even Asia, not Canada. None of the Canadian groups have the money to do a US deal.

Look where the record companies are based for a hint.

 

[davideduardo]

I thought that was still a no-no...and why Rupert Murdoch became a US citizen.

The FCC has made case by case decisions allowing an Italian, an Australian couple and a Mexican media giant to own 100% of US stations.

Univision just filed for a subsidiary to have up to 100% foreign ownership.

 

[secondchoice]

So in theory someone in Russia, China, or (fill in any country recognized the US but the not in a declared war against the US) can own and operate American Radio and TV stations? This could be a legal nightmare which could result in a bunch of “former” Pravda employees controlling significant parts of the US airwaves. The FCC would have to show in court why they can “discriminate” against individuals born in certain counties.

IMHO: Personally I am against any foreign ownership of US airwaves. I know this isn’t Politically Correct If to be politically correct the US Government chooses to give up some of our sovereignty then:

Any foreign ownership of US Radio and TV properties should not be allowed from a country, it’s citizens, or controlled corporations unless that country allows US broadcasters to operate freely in that country. Naturalized citizens from a country that doesn’t allow US broadcasters would have a waiting period of at least 7 or 10 years.

The debt to equity via bankruptcy argument should not hold up. Any bond lawyer for a foreign buyer should have pointed the citizenship requirements (due diligence).