Audacy granted a 30 day extension to make its missed bond payment

[101tm]

Citadel got a lot of albatrosses buying ABC Radio, much like Entercom did with CBS. ABC was worse with the inefficient, small clusters and large amount of AM’s but wasn’t nearly the size of CBS.

When Entercom bought CBS, they got some high billers with the all-news stations, but they’re also very expensive to operate and face declining demographics. The cost savings measures Audacy has tried to implement (like we saw across the alternative and country formats) seemed to be quick knee jerk reactions that didn’t always work out well. When the company inevitably has to cut costs further, I’m not sure how well they’ll be able to mitigate the impact on the on air product. iHeart has worked on nationalization methods to save costs for two decades. Audacy tried to set it up overnight. They could have worked on nationalization efforts to cut costs as soon as they got the CBS stations, but next to nothing changed until they had to do something. They kept spending money on podcasting.

 

[MarkW]

Which came after buying Lincoln Financial and WBEB. They kept buying and buying the same old style business, digging the hole deeper and deeper. How did any of this position them for the future?



The lenders never get screwed in a Chap 11. They get all the assets. The problem is that the lenders don't want to own 300 radio stations. They want money. The venders can sue, and as Ed Stolz found out, if you don't pay your venders, they can force a sale of your assets to get paid.

You could not possibly be more wrong about the "lenders never getting screwed" in a chapter 11.

I work for a large commercial lender. I've performed credit underwriting for DIP as well as exit financing for multiple bankruptcy reorgs.

Recouping anything more than a fraction of prepetition loan losses from down-the-road sale of equity interests received in a newco is uncommon.

True, the extent of screwing varies depending on the class to which a particular prepetition claim belongs.

In the case of the 2nd lien lenders in Audacy, they'll be lucky to get anything more than token consideration in a plan of reorganization. The 1st lien debt is greater than the enterprise value of Audacy. Weeks ago, before Q3 numbers were released, I pegged the EV at $800M to $1.1B. I regret stating that, because now I believe it is several hundred million less than that, probably more along the order of $550M to $750MM.

 

[TheBigA]

You could not possibly be more wrong about the "lenders never getting screwed" in a chapter 11.

I'm talking about broadcasting. In the iHeart settlement, the lenders got about 97% equity in the company. They're participating in the cash flow other revenue streams. It's not a short term solution, but they didn't loan this money for the short term. Last I checked iHeart still owes $9 billion. So the lenders didn't get screwed. They just didn't get paid on time. But nobody forced them to lend the money either. The post I was responding to implied that these companies walk away without any obligation.

iHeart Lenders Asked For 95.3% Of The Company - Radio Ink

Much like Cumulus, iHeartMedia has been trying to restructure its massive debt. And much like Cumulus, it hasn't been easy. This month there was a little back and forth between iHeartMedia and some of its lenders, but the two sides still seem very far apart.

radioink.com

 

[MarkW]

Is their equity stake (today) worth more than the amount of prepetition debt they were required to discharge?

I fully agree lenders deserve a lot of blame for unrealistic underwriting theses in LBO transactions.

 

[TheBigA]

Citadel got a lot of albatrosses buying ABC Radio, much like Entercom did with CBS. ABC was worse with the inefficient, small clusters and large amount of AM’s but wasn’t nearly the size of CBS.

There's a trend here. They got all of the expense and none of the infrastructure. You can't just buy a part of an integrated company and expect the arm or the leg to exist without the rest of the body. That's the mistake all of these companies keep making.

 

[TheBigA]

Is their equity stake (today) worth more than the amount of prepetition debt they were required to discharge?

They're not selling it all today, so that's not the proper question. As I said, they're taking the long way home.

We all know its a declining asset. The lenders knew that when they lent the money.

 

[101tm]

There's a trend here. They got all of the expense and none of the infrastructure. You can't just buy a part of an integrated company and expect the arm or the leg to exist without the rest of the body. That's the mistake all of these companies keep making.

And, neither ABC or CBS Radio had exactly lean staffs at their stations and from my understanding had a lot of redundant behind the scenes positions as well. We saw that with WCBS, WINS, and the CBS NYC cluster.

 

[TheBigA]

And, neither ABC or CBS Radio had exactly lean staffs at their stations and from my understanding had a lot of redundant behind the scenes positions as well. We saw that with WCBS, WINS, and the CBS NYC cluster.

The buying company inherits all of the contracts signed by the seller. That was a huge problem when Regent bought a bunch of CBS radio stations. The CBS people made a lot more than the industry average. Once you remove them from the big company, they still get paid based on the contract.

 

[MarkW]

They're not selling it all today, so that's not the proper question. As I said, they're taking the long way home.

We all know its a declining asset. The lenders knew that when they lent the money.

If it's a declining asset, then why would they want to continue to hold a long position in any of the equity?

I suspect the prepetition lenders who received newco equity already sold out of their equity positions long ago.

 

[davideduardo]

After studying the report further, I'm guessing they're rolling the loan/revolver payments into the operating or impairment loss categories. That's why the jumps.

And here's a radio finance lesson regarding ratings kids, so pay attention. Just because stations have good ratings, it doesn't necessarily translate into cash flow. For example; in the report I linked, Audacy rightfully claimed:
"Strong Ratings Performance. Our radio stations continue to gain ratings share from our
competitors as Audacy brands in PPM markets had their sixth consecutive quarter of year
over year share growth in the key A25-54 demographic. Our gains came across many
markets with 70% (24 of 34) of our PPM markets seeing ratings improvement."
I believe that statement is likely accurate. All media companies, TV or radio, whatever the format, are facing the same advertising and economic challenges as the stations with lesser ratings. The big difference is when it comes to levels of debt obligations carried during those challenges.

The real deception here is the use of "share" for comparisons. "Share" is a percentage of people who actually use radio. And that base is declining.

So, while share may be increasing, the number of listeners delivered is declining. 20 years ago, the national 6 AM to Midnight all week rating for all radio was around 20. Now it is around 5.

So, using that historical base, a station with a 5 share in Big Market USA in 2003 might have had 80,000 AQH persons listening now has 20,000 persons. They still have a 5 share, but instead of a rating of 1.0, they now have a rating of 0.2 or 0.3. Agencies use a metric called Cost Per Point, and they are not going to quadruple the CPP compared with what they were paying two decades ago!

 

[davideduardo]

The lenders never get screwed in a Chap 11. They get all the assets.

They nearly always take a haircut. In this case, the assets are mostly the licenses as stations have very little in the way of tangible assets, even if they own their own towers and land (which most have sold off and leased back anyway).

Licenses today are worth much less than when most stations were bought. Some recent sales have been in the 15% to 20% of the original purchase price!

The problem is that the lenders don't want to own 300 radio stations.

Which are worth about 20% to 25% of their value of just 15 years ago!

They want money. The venders can sue, and as Ed Stolz found out, if you don't pay your venders, they can force a sale of your assets to get paid.

Stolz is a poor example as he was / is an exception to all measures of "good business practices".

 

[davideduardo]

Combined with having to pay capital gains on the sale, I wouldn't look for tower or AM site property or remaining owned-FM site to be some form of silver bullet.

And most AM sites are not ideal for the vertical real estate companies. They tend to have more towers than needed for leasing to other parties, and are often located for ideal directional antenna market coverage, not for proximity to population.

The valuable AM sites are the ones that have been surrounded by urban growth, but to capture the value the station has to move; the value is in taking the land for housing or commercial property construction. That means that the station has to move (expensive) or go silent (write-off). Good example is WIBC in Indianapolis, a 50 kw AM that is now running a "temporary" low power and using that "other band" to reach listeners.

 

[TheBigA]

Licenses today are worth much less than when most stations were bought. Some recent sales have been in the 15% to 20% of the original purchase price!

Nobody forced these lenders to lend money for radio stations. There's a reason why banks and even the SBA won't lend money for radio stations.

 

[TheBigA]

If it's a declining asset, then why would they want to continue to hold a long position in any of the equity?

They should have asked that question BEFORE they lent the money. Radio has been a declining asset for 20 years. Even Farid Suleman realized that when he bought ABC.

The ONLY way these lenders will get their money back is to extend the payment deadline even longer.

 

[davideduardo]

They should have asked that question BEFORE they lent the money. Radio has been a declining asset for 20 years. Even Farid Suleman realized that when he bought ABC.

The breaking point was the 2008 recession. Remember, the year before Clear Channel had "sold" to the investment bankers at a record price, and then when the economy stalled they tried to get out of the deal and could not.

For radio, 2008-09 was even more deadly: the new PPM showed PUR to be about 30% lower than in the diary, killing rates based on CPP in the top 50 markets to stall... and then Apple brought out the iPhone and introduced a new form of competition.

 

[TheBigA]

The breaking point was the 2008 recession.

But even Farid Suleman recognized the devaluation in 2006. He revised his offer for ABC because the value declined. Then he bought it and it declined further...before the 2008 recession.

 

[davideduardo]

But even Farid Suleman recognized the devaluation in 2006. He revised his offer for ABC because the value declined. Then he bought it and it declined further...before the 2008 recession.

Wasn't part of Suleman's revised offer due to the very rapid decline in the actual ratings of the ABC stations, particularly the AM ones that were a big part of the sale?

 

[TheBigA]

Wasn't part of Suleman's revised offer due to the very rapid decline in the actual ratings of the ABC stations, particularly the AM ones that were a big part of the sale?

Don't declining ratings result in declining value? That's what I'm saying. The Audacy lenders had a lot of history to base this on,

 

[davideduardo]

Don't declining ratings result in declining value? That's what I'm saying. The Audacy lenders had a lot of history to base this on,

Yes, but the ratings issue was not related to a decline in radio overall. That was just a reflection of how ABC was not keeping up.

 

[MarkW]

They should have asked that question BEFORE they lent the money. Radio has been a declining asset for 20 years. Even Farid Suleman realized that when he bought ABC.

The ONLY way these lenders will get their money back is to extend the payment deadline even longer.

I agree on the first paragraph.

In terms of the second paragraph, "being patient" = being speculative. If broadcaster cash flow generation continues to decline and valuations continue to worsen, then losses on investment will worsen.