Audacy bankruptcy could occur by month's end

[Kelly A]

So I'm not allowed to talk about any publicly traded broadcaster's financial struggles here?

Ah, continuing to avoid the question. So which Entercom/Audacy station fired you?

Who the hell made you the traffic cop?

The rules of the forum include we're not supposed to post inaccurate information. Your subject line mentioned bankruptcy, but the article you posted only talked about renegotiating debt. Therefore; you posted what you hope/believe will happen in the subject line, but with nothing to back up your hope/assumption.

My subject line is perfectly reasonable given the situation at hand. Nowhere did I suggest they are out of money or headed for liquidation. What I am suggesting is a reorganization in Chapter 11 to strengthen the balance sheet is quite possible.

By the end of the month, but nothing following your suggestion indicated that was happening.

I do think there is a better than even money chance they'll file Chapter 11 within 30 days. I may be right or wrong on the timing.

And I'm not saying your prediction is wrong either. What I'm calling you out on is an apparent chip on your shoulder regarding Audacy as to why you post frequently negative comments about their finances. You should at least man up enough to explain the reasons for your proclamations.

I see no convincing reason as of yet why Audacy will be able to avoid a Chapter 11. Cumulus and iHM both had to go thru an 11.

Without knowing all the details; I'd say it's because Audacy has enough free cash to cover debts, whereas Cumulus and iHeart less so. You of all people should understand that companies want to protect cash for real emergencies. Renegotiating debt during a payment grace period keeps that cash available longer.

 

[MarkW]

However, the CEOs of Cumulus and iHeart didn't own 30% of their companies. This is a very different situation. A company goes into Chap 11 when it seeks protection, and it's willing to turn the company over to the court. I don't think that's where Field is.

Excellent point, which is largely why I believe a partial or full prepack is likely in this situation (which assumes an out of court restructure cannot be consummated; my personal view is doing this out of court is a longshot.)

Still, I don't see how the family will be able to avoid heavy dilution to their equity positions in any case. If the business valuation fulcrum falls somewhere in the middle of, say, the second lien notes when evaluating the capital stack, if those lenders are asked to take a big write-off, they most likely will want a big equity stake in return.

 

[TheBigA]

Good point, and one where a partial exchange of debt for partial equity and a refinancing of the remaining debt becomes the first option for the Fieldes.

The question is how much equity do they want to give up, and I believe the Fields want to retain their share of the company. You can't do that in Chap 11.

The other part of this is that both the Cumulus and iHeart bankruptcies happened BEFORE covid. They were announced in 2018. I don't believe the difficulties at Audicy really began until covid. A lot of companies have faced similar problems as a result of the pandemic. I suspect Audacy simply wants to renegotiate the due dates a few years because of the pandemic.

 

[TheBigA]

Still, I don't see how the family will be able to avoid heavy dilution to their equity positions in any case.

Lenders like to see a situation where the CEO has personal stake in the company. How much "skin" does his have? The more skin, the safer the loan is. So I can see why they wouldn't want to change that. In fact, I could see a situation where that stake is increased.

 

[exdjted]

So I'm not allowed to talk about any publicly traded broadcaster's financial struggles here?

Who the hell made you the traffic cop?

My subject line is perfectly reasonable given the situation at hand. Nowhere did I suggest they are out of money or headed for liquidation. What I am suggesting is a reorganization in Chapter 11 to strengthen the balance sheet is quite possible.

I do think there is a better than even money chance they'll file Chapter 11 within 30 days. I may be right or wrong on the timing.

I see no convincing reason as of yet why Audacy will be able to avoid a Chapter 11. Cumulus and iHM both had to go thru an 11.

Is bankruptcy likely? Yes, unless the Powerball jackpot grows to $4 Billion or so, and even then, I don't see David Field standing in line at 7-11 to buy a hot dog and a couple of quick pick tickets. I just don't see it happening on your timetable.

I see mid-2024 as the time of reckoning. That's when the first big notes are due. Also, we don't know what sort of ownership changes may be coming from the FCC due to the recent court order. While it's unlikely the current commission will loosen the caps in a big way, even allowing the caps to go up by 1 FM in top 50 markets could spark a burst of trades that may see Audacy divest a few markets to competitors that would bring in substantial cash. Yes, while I know that selling off assets for short-term gain is anathema to most, Audacy is going to be a much leaner company down the road, bankruptcy or not. They're going to have to get rid of some stations whether a judge or the board orders it, unless David Field has 50 kidneys he can sell off.

That's my take. You can disagree with me if you desire. Doesn't matter. You're the one who used the word bankruptcy and a specific time frame when neither are mentioned in the article you referenced. No one is disputing that bankruptcy is the most likely option, they're just taking exception to your assertion that it's likely within the next 30 days.

 

[TheBigA]

I see mid-2024 as the time of reckoning. That's when the first big notes are due.

And from what we can see, they want to delay that a few years. They want to do it now rather than wait.

 

[MarkW]

Lenders like to see a situation where the CEO has personal stake in the company. How much "skin" does his have? The more skin, the safer the loan is. So I can see why they wouldn't want to change that. In fact, I could see a situation where that stake is increased.

I'm not sure the holders of the 2nd lien 2027 & 2029 notes will concur with that sentiment.

The company would need to find a way to get them some cash upon exit to entice them to abdicate their probable demands for significant equity in a newco.

Those 2nd lien notes total about $1B in exposure, for what that's worth. There is about $850 million in first lien debt ahead of them. (I'm not counting the receivables purchase facility since that should be self-liquidating and more or less off limits.)

Of course, if Audacy's professionals were to argue the company is worth $850 million or less, they could try to really stick it to the bondholders. (I am not recommending that course of action nor am I suggesting that's the tact the company will take.)

I've seen some clever structures where impaired subordinate debt holders are offered 1:1 roll-up of prepetition claims with any commitment provided toward "new money" exit financing.

Illustrative Example: subordinated debt holder "A" holds $20 million of prepetition notes. He can either (a) participate in a new money facility at a $2 million stake or (b) not participate. If (a) is chosen, $2 million of his prepetition 2nd lien debt becomes post-petition 1st lien (but debt holder "A" will need to provide $2 million in new financing as part of the plan of reorganization). If (b) is chosen, then debt holder "A" avoids having to fund $2 million in new loans and instead might receive menial consideration worth little to nothing as part of the plan of reorganization.

 

[MarkW]

Just wanted to thank exdjted for the well reasoned and respectful post.

I definitely wouldn't bet the farm on 30 days from now, but based on the fact advisors were engaged in early July, that timeline is my gut feeling (for better or worse).

I'd be very surprised if they were to find a way to kick the can down the road to mid-2024. Stranger things have happened, though!

 

[TheBigA]

The company would need to find a way to get them some cash upon exit to entice them to abdicate their probable demands for significant equity in a newco.

I think that's what they've been doing, and why they set up Atlas LLC.

 

[Kelly A]

The question is how much equity do they want to give up, and I believe the Fields want to retain their share of the company. You can't do that in Chap 11.

Knowing Joe, I suspect that's exactly the sentiment. This isn't the same situation or shareholder structure as iHeart or Cumulus.

The other part of this is that both the Cumulus and iHeart bankruptcies happened BEFORE covid. They were announced in 2018. I don't believe the difficulties at Audicy really began until covid. A lot of companies have faced similar problems as a result of the pandemic. I suspect Audacy simply wants to renegotiate the due dates a few years because of the pandemic.

You're right as a lot of traditional and new-media companies took a huge hit during the pandemic. Lenders have gotten used to the scenario.

 

[TheBigA]

This isn't the same situation or shareholder structure as iHeart or Cumulus.

Correct, that's all I'm saying. Some people want to lump all these together, and they aren't. Had Lew Dickey remained the head of Cumulus, it might have been. But once he was replaced, the new people had no "emotional attachment" to what happened next.

The Fields are different. Joseph started the company and owns a lot of stock. I'm not sure about the designation that stock has. if it's Class A or some other classification. But it's different from standard stock.

 

[Kelly A]

Correct, that's all I'm saying. Some people want to lump all these together, and they aren't.

I'm still curious about which Audacy/Entercom property kicked MarkW to the curb.

The Fields are different. Joseph started the company and owns a lot of stock. I'm not sure about the designation that stock has. if it's Class A or some other classification. But it's different from standard stock.

I believe both Joe and David hold a fair amount of what is considered Class A shares. As you pointed out, even though publicly traded, it's always been a family company. Joe has always been very protective when it comes to control, and in no way would allow some board or vulture shareholder to wrestle that control away.

 

[MarkW]

I commented heavily on Cumulus' bankruptcy, recently commented on Salem's financial troubles, and I also made commentary immediately prior and during iHM's case. I am not treating Audacy any differently. I have no ax to grind. I do think opening leverage of the CBS Radio merger was too high and stated same long ago. Have they made some ill advised business decisions? Yes. Has operational execution been lacking at times? Yes. I don't say that out of any sort of spite; I say that because that is my honest opinion.

I provide such opinion as an outside observer who finds such matters interesting and nothing more.

I've never worked in broadcasting or in any company that provides services to radio & TV operators other than commercial lending.

 

[secondchoice]

The Lawyers will probably make more off this than anybody else.

 

[MarkW]

With trailing 4-quarter Adjusted EBITDA of $92 million (bearing in mind we're in a rough patch from an ad revenue vantage point), it wouldn't shock me if the company enters into an RSA with the 1st lien lenders only and then in a plan of reorganization seeks to give the 2nd lien bondholders extremely little or nothing. There *could* (not to be confused with "will") then be a BK court battle where the 2nd lien creditors committee successfully extract a little bit of additional value for themselves. We often refer to this as "nuisance value "

This is just one scenario that could play out. If the 1st lien lenders were to be deemed unimpaired (which I'm thinking is increasingly unlikely), then the 2nd lien lenders would have a much greater chance of getting a big equity stake in a newco or perhaps getting a cash payout on the plan effective date (probably at less than 5 cents on the dollar) to settle their claims.

If the company does indeed reorganize under an 11, it will be fascinating to see how the initial balance sheet capitalization of the newco looks.

To take a wild guess, I think a newco *might* be structured with $400 million or $500 million of opening debt. It is also possible, for instance, that some non-core assets will be ringfenced for sale on a post-emergence basis; in essence an Audacy Atlas 2.0. A good portion of those proceeds could then be disbursed to newco equity holders or used to prepay newco term debt. This is merely one possible scenario. There are many different possibilities.

 

[MarkW]

It will be also interesting to see if the Fields are willing to infuse any of their personal wealth into the company as part of any plan of reorganization, if an 11 filing occurs. That could be the best way of ensuring a significant equity stake in a reorganized Audacy. Purchasing prepetition 1st lien debt at a steep discount may be another way of accomplishing the same objective. Perhaps that is already occurring.

 

[Kelly A]

With trailing 4-quarter Adjusted EBITDA of $92 million (bearing in mind we're in a rough patch from an ad revenue vantage point), it wouldn't shock me if the company enters into an RSA with the 1st lien lenders only and then in a plan of reorganization seeks to give the 2nd lien bondholders extremely little or nothing. There *could* (not to be confused with "will") then be a BK court battle where the 2nd lien creditors committee successfully extract a little bit of additional value for themselves. We often refer to this as "nuisance value "

But as already mentioned; this is essentially a family company, why would they agree to do any of what you predict? They likely have enough cash kicking around. They just don't want to spend it.

 

[secondchoice]

I personally don't know the Field Family financial situation but assuming they have billion$, they could wait till bankruptcy then buy the debt at a steep discount becoming the largest debt holder which gives them the power to dictate the terms of the settlement assuming the Judge will along with it. Or they could just let go and keep what money they have. Then sweet talk some invertors like Lew Dickie did and start another fund and start buying properties

 

[davideduardo]

I personally don't know the Field Family financial situation but assuming they have billion$, they could wait till bankruptcy then buy the debt at a steep discount becoming the largest debt holder which gives them the power to dictate the terms of the settlement assuming the Judge will along with it

.They certainly have money outside of radio, but not "billions" and, with my guessing, probably more like $100 million or so. In other words, they do not have enough to do what you are suggesting.

 

[TheBigA]

Then sweet talk some invertors like Lew Dickie did and start another fund and start buying properties

Keep in mind that yes, Lew Dickey raised some money, but TTBOMK never really spent it.

This was all he bought:

Lew Dickey Among Investors Swindled By Former Akazoo Managers, Investigation Finds.

Akazoo, the Luxembourg-based streaming music service propelled onto the U.S. radio industry’s radar last year via a high profile merger, says its special committee completed an internal investigation and found

www.insideradio.com