Audacy Filed For Bankruptcy

[Kent]

Being that streaming in general didn't become a massive deal until after 2010 (it had some adherents before then, but didn't become the increasingly dominant audio entertainment medium until after 2012 or so, at least according to the RIAA), I personally don't think radio dropped the ball.

I hope you're right. I don't know that the data support that conclusion, though. On the bright side, radio still reaches more than 80% of the population at least once-a-week. On the down side, people spend less time with it than ever before. Listening is down roughly 75% from where it was 20 years ago.

I don't think that the streaming audio marketplace will really come into its own until the 2030's, when FMs may start to pull the plug. A lot can happen in 15 years. And as BigA has said before concerning this subject, consumers like the cost of free, and FM radio is free, and always will be. Streaming? perhaps not. Especially if digital royalties go up again.

All the time listening to radio that has gone away went somewhere. Most of it probably wasn't to video, and none of it went to the newspaper. Getting the information is difficult for the general public as most of those companies either don't release their numbers or bury them deep in their financials, but streaming would seem to be where the bulk of that listening has gone. I don't know that FM will pull the plug in our lifetime, but I do agree that there will always be a market for radio in some form or another. When it comes to streaming, even if you don't pay to listen, you're paying for your internet and your data plan. I get that reminder every month as my cable bill is now in excess of $250, and my cell phone adds about $100 to that. Most people, though, no longer view those as discretionary expenses. (Thanks, by the way. You just reminded me I need to return the fiber internet company's call from a few days ago; switching to it from the cable company should save me at least $100/month!)

RE: The record labels mistake: One could argue that their mistake was going along with the 99 cent MP3 single, being that their revenues nosedived after that. The 99 cent MP3 single killed the album, and by 2019 that cut their revenues roughly 40% from where they were in 1999. Of course, after Napster, the writing was on the wall. MP3's and file sharing of some sort was here to stay, and the 99 cent single was designed to counter that (and make Apple a lot of money).

Problem was people didn't want to pay north of $10 to buy an album when they only wanted one song. The labels should've figured that out and gotten in front of the situation before the audio pirates arrived. The pirates probably would've arrived anyway, but giving the consumers what they wanted and being able to control that was always going to work better than trying to ram overpriced media down their throats. The only viable solutions were to let consumers buy a la carte, provide better songs on each album, or make the albums more of an entertaining and interactive experience when put into a CD-ROM drive. The labels chose to stay the course and forge ahead attempting to make the consumer bend to their will. It didn't work.

 

[MarkW]

The profitability of the clusters was not the problem. The problem was the debt. Any ad-supported media needs a national platform to compete. Advertisers want big numbers. So having the scale of 400 stations makes buying ads more efficient. On the other side, the people need someone to own these radio stations. The idea of small local owners from 50 years ago doesn't work now. Nobody wants to own radio stations. They're competing with nig tech companies that have no limits.

This is why the Audacy lenders are so happy with this bankruptcy. They get a huge cash cow that will now have little debt, and they're getting rid of the family that built it. It's like they helped you build a big beautiful house, you pay a few years of interest & principle, and then they foreclose and kick you out. You get nothing, and the banks get money & your house.

The profitability of the clusters was not the problem. The problem was the debt. Any ad-supported media needs a national platform to compete. Advertisers want big numbers. So having the scale of 400 stations makes buying ads more efficient. On the other side, the people need someone to own these radio stations. The idea of small local owners from 50 years ago doesn't work now. Nobody wants to own radio stations. They're competing with nig tech companies that have no limits.

This is why the Audacy lenders are so happy with this bankruptcy. They get a huge cash cow that will now have little debt, and they're getting rid of the family that built it. It's like they helped you build a big beautiful house, you pay a few years of interest & principle, and then they foreclose and kick you out. You get nothing, and the banks get money & your house.

The lenders that bought debt on the secondary market at a fraction of par value are happy.

The second lien lenders who paid a higher price or have remained debt holders since the original issuances of the 2027 notes and 2029 notes most certainly are not happy.

 

[TheBigA]

The lenders that bought debt on the secondary market at a fraction of par value are happy.

The second lien lenders who paid a higher price or have remained debt holders since the original issuances of the 2027 notes and 2029 notes most certainly are not happy.

Which group ends up with all the equity?

 

[MarkW]

The equity is worth a small fraction of the debt amount being discharged. The disclosure statement and plan of reorganization spell out expected recovery ranges by creditor class.

$1.9 billion of prepetition debt (not counting the receivables facility) is essentially being exchanged for $218 million of the proposed exit debt plus equity with an estimated opening value range of $250 million to $450 million. As noted on page 3 or 4 of this thread, there is a wide gap between the consideration prepetition 1st lien lenders would receive pursuant to Plan terms versus what the prepetition 2nd lien lenders would receive. The latter group will recover a puny single digit percentage of their prepetition debt amount.

Is it possible some hidden equity exists that can be unlocked via real estate divestitures and the like? Sure, but I don't think that amount is going to be any sort of game changing number.

 

[TheBigA]

The equity is worth a small fraction of the debt amount being discharged.

But the equity gives them control of a megaphone.

 

[davideduardo]

But the equity gives them control of a megaphone.

Which is a commodity that none of the future equity holders particularly wants.

 

[TheBigA]

Which is a commodity that none of the future equity holders particularly wants.

Then why did they call in this loan so quickly? They didn't have to jump on this. They could have done a refi.

My take right now is that they wanted to foreclose. They wanted the Fields out, and they wanted to call the shots. I don't know why,

 

[davideduardo]

Then why did they call in this loan so quickly? They didn't have to jump on this. They could have done a refi.

My take right now is that they wanted to foreclose. They wanted the Fields out, and they wanted to call the shots. I don't know why,

I don't see that at all. The loan payments were past due, and there was no way the outstanding debt could be refinanced; at current interest rates any refinancing would have resulted in larger payments of interest and no progress in paying off the principal.

The only way to capture some of the principal was to take a haircut but seize the assets. That converts the non-performing loans into poorly performing investments. Looks better on the reports to equity holders of the finance companies.

 

[TheBigA]

I don't see that at all. The loan payments were past due, and there was no way the outstanding debt could be refinanced;

They refinanced once before. The past due was voluntary. They had the cash on hand. Something is fishy here.

 

[davideduardo]

They refinanced once before. The past due was voluntary. They had the cash on hand. Something is fishy here.

They refinanced when interest rates were at their lowest in a decade. Now, they are at the high point. There is no way a refinancing could be done without dragging down the ratios on the lender's statements. Now, they have a different situation that can be blamed on the pandemic and the subsequent issues with the economy and not on "making a bad loan decision".

 

[TheBigA]

Now, they have a different situation that can be blamed on the pandemic and the subsequent issues with the economy and not on "making a bad loan decision".

The result is that a financial situation caused by a once in a 100 year pandemic which caused a 50% decline in revenues. One would think that would justify a refinance. Instead we have lenders foreclosing on a family-run company, destroying a lifetime of equity created by that family. In exchange, the CEO gets two years of salary in severance. As I said, something seems fishy.

 

[TheBigA]

Problem was people didn't want to pay north of $10 to buy an album when they only wanted one song. The labels should've figured that out and gotten in front of the situation before the audio pirates arrived.

The labels had 100 years of heritage invested in the entire physical product model. It's how they've been doing business since the victrola! They invested all of that time and energy in making CDs, transporting them on trucks driven by Teamsters to record stores all over the country. Promoted by radio stations. That entire system was thrown out the window. Think of all the jobs and professional relationships that were destroyed by replacing physical product with audio files.

The way this translates to Audacy, they went from a company that received music for free as promotion, to paying royalties for that exact same music. The model moved from music fans buying music to streaming companies like Audacy paying for music so the music fans can listen for free. It's a total revolution.

 

[Larry]

They refinanced once before. The past due was voluntary. They had the cash on hand. Something is fishy here.

You’re assuming thet a lender(s) would have refinanced or used them new loans. You’re also assuming Audacy would be able to pay back the refinanced loans at significantly higher interest rates. Not only would the interest rates be higher because of the economy and the increases in interest rates from the Fed but also because Audacy would be viewed as a higher risk or less creditworthy customer

 

[MarkW]

They refinanced once before. The past due was voluntary. They had the cash on hand. Something is fishy here.

The company was quickly losing cash on a levered basis. If the debt service had continued to be performed as agreed, the company would have been out of cash by second quarter of 2024 in all likelihood.

 

[MarkW]

Then why did they call in this loan so quickly? They didn't have to jump on this. They could have done a refi.

My take right now is that they wanted to foreclose. They wanted the Fields out, and they wanted to call the shots. I don't know why.

For mid corporate and large corporate transactions, commercial lenders often aren't willing to take massive write downs on their debt positions without grabbing the equity. Controlling the equity is the only hope of recovering any portion of the loss arising from debt write-down.

An in-court proceeding is often preferable to out of court because you can eliminate all prepetition debt held by a particular creditor class if certain voting thresholds are met. The balance sheet would be messier if this were done out of court. Also, if this were done out of court, the threat of lawsuits from non-consenting parties would be greater.

 

[tbolt909]

The company was quickly losing cash on a levered basis. If the debt service had continued to be performed as agreed, the company would have been out of cash by second quarter of 2024 in all likelihood.

Reading all the posts in this thread is fascinating. Did Audacy use the Bernie Madoff or Lehman Brothers playbook? Too big to fail indeed. David Field played a high stakes game of Chess with his Dad's company and lost. Checkmate is the end of the game...

 

[MarkW]

Reading all the posts in this thread is fascinating. Did Audacy use the Bernie Madoff or Lehman Brothers playbook? Too big to fail indeed. David Field played a high stakes game of Chess with his Dad's company and lost. Checkmate is the end of the game...

There is nothing here to suggest debt holders or equity holders were defrauded, and there was no pyramid scheme, so the Madoff analogy in no way applies.

Lehman Brothers over invested in risky mortgage backed securities, was over levered and had poor corporate governance.

 

[Kelly A]

For mid corporate and large corporate transactions, commercial lenders often aren't willing to take massive write downs on their debt positions without grabbing the equity. Controlling the equity is the only hope of recovering any portion of the loss arising from debt write-down.

I agree that's probably what's going on here. There were no doubt several rounds of discussions about potential refinancing that we never saw, but with interest rates going way up around that time combined with Audacy continuing to burn through their cash reserves, they just got backed into a corner.

An in-court proceeding is often preferable to out of court because you can eliminate all prepetition debt held by a particular creditor class if certain voting thresholds are met. The balance sheet would be messier if this were done out of court. Also, if this were done out of court, the threat of lawsuits from non-consenting parties would be greater.

Yep, at this point all the nuances of a family business had long passed. Now it's just following a pretty boilerplate process.

 

[tbolt909]

There is nothing here to suggest debt holders or equity holders were defrauded, and there was no pyramid scheme, so the Madoff analogy in no way applies.

The odd thing is that by the time the Entercom - CBS merge (or acquisition) occured, the evidence was known. They had seen what happened to Clear Channel and Cumulus. They should have known what condition Radio was in and the challenges the industry faced...

 

[Kelly A]

The odd thing is that by the time the Entercom - CBS merge (or acquisition) occured, the evidence was known. They had seen what happened to Clear Channel and Cumulus. They should have known what condition Radio was in and the challenges the industry faced...

How would they have known Wall Street would abandon traditional media?
How would they have predicted a pandemic?
How would they have known the national ad climate wouldn't have recovered after the pandemic?