Audacy Filed For Bankruptcy

[exdjted]

From Inside Radio:

Report: Audacy Preparing To File For Bankruptcy Within Weeks.

The Wall Street Journal reports that Audacy is gearing up to file for bankruptcy in the coming weeks, grappling with a significant decline in advertising revenue that has rendered it

www.insideradio.com

 

[CTListener]

Who are these "senior lenders" that will own Audacy after its Chapter 11 restructuring? Banks? Vulture capitalists? What will they do with a radio company?

 

[BruceNYC]

I sense that Entercom now Audacy "bit off more than it could chew" by acquiring all CBS stations. They will likely be required to sell many of their stations.

 

[TheBigA]

They will likely be required to sell many of their stations.

Nope. That's not what Chapter 11 means. Selling stations wouldn't pay off the debt.

Chapter 7 is liquidation. This is Chapter 11:

Chapter 7, also referred to as liquidation bankruptcy, is when the court appoints a trustee to oversee the sale of as many of an individual's assets as are needed to pay their creditors. By contrast, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts, and assets. It is most often used by businesses, though it is available to some individuals as well. The main difference is that the entity filing for bankruptcy remains in control of operations and is not required to liquidate their assets.

 

[Kent]

I sense that Entercom now Audacy "bit off more than it could chew" by acquiring all CBS stations. They will likely be required to sell many of their stations.

It will be a prepackaged Chapter 11 bankruptcy should it happen. The lenders who will be owning the company will ultimately want to recoup their investments. At some point, that will likely involve selling some or all of them, but, as we've seen with Cumulus and iHeart, that doesn't mean that will happen anytime soon, and it almost certainly won't be required. When Entercom/Audacy made the CBS Radio deal, it already had to break up its grandfathered clusters. So, there won't be any FCC required divestitures.

Who are these "senior lenders" that will own Audacy after its Chapter 11 restructuring? Banks? Vulture capitalists? What will they do with a radio company?

I believe those senior lenders are mostly private equity firms, though some banks and VC might be involved. I seem to remember someone had been buying debt in both Audacy and Cumulus, though I can't remember who exactly that was. As for what they'll do with a radio company, Audacy generates an operating profit. As I mentioned above, they're likely to sell at some point, but that could be years, even decades, away if they're making money. If the bankruptcy predictions come to fruition (and I suspect they will), the company won't be loaded down with debt. Investors might be content operating it at long as it remains profitable, especially if station values don't go up.

 

[JeremyAndrews]

iHeart and Cumulus both have been in Chapter 11. They'll probably get rid of a few stations, but otherwise I don't expect that much otherwise. I know Cumulus had been selling some stations that they didn't feel they needed for extra money. iHeart, not so much.

 

[Deus Ex Machiato]

I sense that Entercom now Audacy "bit off more than it could chew" by acquiring all CBS stations.

Around the time that the sale was going through, David Field expressed his admiration for how iHeart was doing business. Well, he sure did a bang-up job emulating them. Generic sounding stations with staffs stretched to the limit after laying off talent to cover the debt, stock price in the toilet, and bankruptcy coming soon. Congrats David! I wonder if he's going to give himself a nice bonus after the next "reduction in force" at Audacy iHeart 2.0?

 

[TheBigA]

Around the time that the sale was going through, David Field expressed his admiration for how iHeart was doing business.

On the other hand, he had NO admiration for the CBS Radio people, and all of them were gone by the time the deal closed. So there was no easy transition from one operator to another.

In truth, iHeart has done a great job of diversifying its holdings so it's not as dependent on on-air ad revenue. Unfortunately for him, Field didn't do that with his company. He continues to be almost entirely dependent on local advertising revenue, which is the reason why the company is unable to meet its debts. They spent millions acquiring podcating companies which were also dependent on advertising. In addition, he bought a company that was once a founder of the radio network business back in 1928, and turned it into a company that's completely dependent on local operations and sales. In other words, he kept running the company exactly the way his father ran it 50 years ago. The old ways don't work. That's why he's in this situation now.

 

[MarkW]

The central question in my view was whether the company would be able to enter bankruptcy court with a prepackaged plan of reorganization or not. Looks like a prepack was able to be negotiated before cash ran out (assuming WSJ's reporting is accurate).

It also sounds like - as I expected all along - that current equity owners will receive very little or nothing in the plan of reorganization.

It will be interesting to see how the equity in newco will be structured and allocated between prepetition 1st lien creditors and the prepetition 2nd lien creditors.

It also sounds like the company will be provided DIP financing, which in reality will be exit (i.e. newco) financing if this is truly a prepack BK case. Perhaps some second lien lenders will participate, in which case they'd likely receive 1:1 roll-up of their (otherwise impaired) prepetition claim to super priority lien status.

Finally, it will be interesting to see who stays and who goes from a BOD and C-Suite vantage point. Often, any such changes are not made until immediately following exit from BK.

Any new asset disposals would likely be limited in scope and would occur following exit from BK (perhaps a year or more down the road), much like what we saw with Cumulus.

 

[TheBigA]

Finally, it will be interesting to see who stays and who goes from a BOD and C-Suite vantage point. Often, any such changes are not made until immediately following exit from BK.

The way it worked for both iHeart and Cumulus, the top management all got three year deals, announced in the bankruptcy press releases. The lenders got additional seats on BOD.

iHeartMedia Bankruptcy Plan Approved, CEO Bob Pittman’s Contract Renewed

A U.S. court has approved the bankruptcy plan of iHeartMedia, the biggest radio broadcaster in the U.S., which will shave down its debt load.

variety.com

 

[TheBigA]

I wonder if he's going to give himself a nice bonus after the next "reduction in force" at Audacy iHeart 2.0?

Keep in mind that if things go the way they did at iHeart and Cumulus, he will not be in a position to give himself anything. He will be working for the lenders, and they will tell him what they want. He will likely get a deal based on hitting certain revenue numbers, and his salary will be based on that. Unfortunately, they last time he got that kind of deal, the stock crashed.

As to "reduction in force," the company tried that already during covid. The fired lots of PDs and air talent, and ratings at the stations dropped, so they were forced to hire them all back. This is not a company that knows how to operate a national radio business. Cumulus handed them the keys to a national country format when they got WNSH, and they shut it down.

If I was David Field, I would not want to go from being the CEO of a company he controls to an employee of the lenders. It's a huge demotion. I wonder if he could negotiate getting part of what was the old Entercom (pre-CBS) from the lenders, and go off on his own somewhere. The original intention when CBS Radio was spun off was for it to operate as a free-standing company. Instead, the $2 billion debt became the boat anchor that brought down the entire ship.

 

[Deus Ex Machiato]

Keep in mind that if things go the way they did at iHeart and Cumulus, he will not be in a position to give himself anything. He will be working for the lenders, and they will tell him what they want. He will likely get a deal based on hitting certain revenue numbers, and his salary will be based on that. Unfortunately, they last time he got that kind of deal, the stock crashed.

As to "reduction in force," the company tried that already during covid. The fired lots of PDs and air talent, and ratings at the stations dropped, so they were forced to hire them all back. This is not a company that knows how to operate a national radio business. Cumulus handed them the keys to a national country format when they got WNSH, and they shut it down.

If I was David Field, I would not want to go from being the CEO of a company he controls to an employee of the lenders. It's a huge demotion. I wonder if he could negotiate getting part of what was the old Entercom (pre-CBS) from the lenders, and go off on his own somewhere. The original intention when CBS Radio was spun off was for it to operate as a free-standing company. Instead, the $2 billion debt became the boat anchor that brought down the entire ship.

Actually, the layoffs started before Covid, and then (obviously) accelerated during the pandemic. CBS Radio was run a bit differently. Yes, there were national format captains and VPs of this and that, but the local markets were much more self-contained and even independent. Entercom began centralizing operations not long after the dust settled from the sale, consolidating departments like HR, production, and showing local talent the door at the former CBS stations.

And I'd agree that they are not a company that knows how to operate a national radio business. They've tried to become iHeart 2.0, but iHeart has been doing their thing for a long time and know how to make it work. Audacy obviously doesn't. As for the debt being an anchor, it didn't have to be that way. All those CBS people they got rid of (from executives at the top by the time the sale closed and PDs/talent etc. in the ensuing years) were the people who made the CBS properties worth the $2 billion in the first place. It's like a small regional restaurant chain went out and bought a bunch of high end steakhouses, fired all the managers and chefs, and didn't realize they were in over their head until they started really losing money.

 

[RadioGuy1864]

I sense that Entercom now Audacy "bit off more than it could chew" by acquiring all CBS stations. They will likely be required to sell many of their stations.

Selling the stations would not generate enough cash to pay anywhere near the amount owed the lenders. Not happening.

 

[Mark Roberts]

If I was David Field, I would not want to go from being the CEO of a company he controls to an employee of the lenders. It's a huge demotion. I wonder if he could negotiate getting part of what was the old Entercom (pre-CBS) from the lenders, and go off on his own somewhere. The original intention when CBS Radio was spun off was for it to operate as a free-standing company. Instead, the $2 billion debt became the boat anchor that brought down the entire ship.

That's an intriguing possibility. There certainly are few buyers around, so wholesale asset disposals are out of the question. You also get at an essential point: current Audacy management is going to be on a much shorter leash now. They'll probably be handed budgets, at least in broad outline, with reduced discretion for how to meet financial objectives. This may have been a component of the ongoing negotiations. There will be no more BHAG acquisitions. But day-to-day operations may not see much impact at first. Any asset disposal would be selling into a market with few buyers; Audacy management can make a credible case that busting up clusters will lead to worse financial prospects; in a business dependent on talent, you don't want to spook employees into leaving (though I don't know where most of them would go if they want to stay in the media). I wouldn't expect to see major impacts until 2025 at the earliest. It'll be nothing drastic, especially at first.

 

[RadioGuy1864]

Actually, the layoffs started before Covid, and then (obviously) accelerated during the pandemic. CBS Radio was run a bit differently. Yes, there were national format captains and VPs of this and that, but the local markets were much more self-contained and even independent. Entercom began centralizing operations not long after the dust settled from the sale, consolidating departments like HR, production, and showing local talent the door at the former CBS stations.

And I'd agree that they are not a company that knows how to operate a national radio business. They've tried to become iHeart 2.0, but iHeart has been doing their thing for a long time and know how to make it work. Audacy obviously doesn't. As for the debt being an anchor, it didn't have to be that way. All those CBS people they got rid of (from executives at the top by the time the sale closed and PDs/talent etc. in the ensuing years) were the people who made the CBS properties worth the $2 billion in the first place. It's like a small regional restaurant chain went out and bought a bunch of high end steakhouses, fired all the managers and chefs, and didn't realize they were in over their head until they started really losing money.

Some corporate functions make sense to consolidate, like HR. There are economies of scale there.

 

[Loverofradio]

Some corporate functions make sense to consolidate, like HR. There are economies of scale there.

And production

 

[Loverofradio]

I disagree that Audacy/David Field did nothing and is running radio like it was 50 years ago. I guess no one sees how he made an effort to catch up with technology. The only problem was iHeart did it first. Audacy has more heritage stations than iHeart. In many markets, Audacy is beating several heart stations. The company is not a failure by any means.

 

[TheBigA]

I disagree that Audacy/David Field did nothing and is running radio like it was 50 years ago. I guess no one sees how he made an effort to catch up with technology.

The thing you may have missed is he BOUGHT technology when he bought CBS Radio. In other words, the Audacy App was previously Radio.com. He shut that down and replaced it with a much more proprietary system for Audacy. He also got rid of all the technical research & development people who had built the streaming platform in the first place. He apparently didn't know that there already was a podcasting platform in CBS Radio. He didn't need to buy Pineapple or the other companies. But he did anyway, and they've been a headache from day one.

It's like a small regional restaurant chain went out and bought a bunch of high end steakhouses, fired all the managers and chefs, and didn't realize they were in over their head until they started really losing money.

It's a good analogy because those stations put him in some markets where he'd previously not done business, like NYC. Rather than build Entercom up to their level, he instead brought them down to his level. Very small time, in my opinion. He did a good job running Entercom before the CBS purchase, but this brought him into an area where he had no experience. It happens every time a heritage radio network division has been sold to a traditional station owner. The only time I recall when the transition went well was when Cap Cities bought ABC.

 

[TheBigA]

Audacy management can make a credible case that busting up clusters will lead to worse financial prospects;

I agree. That's probably why my scenario of returning to pre-2016 is unlikely. There is a benefit for keeping it together, just as there was a benefit of running the radio stations together with TV under CBS. It's funny that CBS TV operations continued completely unaffected by the loss of radio, while the radio division had trouble after it was split off from its parent.

 

[Loverofradio]

The thing you may have missed is he BOUGHT technology when he bought CBS Radio. In other words, the Audacy App was previously Radio.com. He shut that down and replaced it with a much more proprietary system for Audacy. He also got rid of all the technical research & development people who had built the streaming platform in the first place. He apparently didn't know that there already was a podcasting platform in CBS Radio. He didn't need to buy Pineapple or the other companies. But he did anyway, and they've been a headache from day one.

oh wow. Thank you for clearing that up