IHeartRadio in big trouble

[AZJoe]

Quote:
iHeartRadio costs jump in latest quarter, adding to suspicion its days are numbered

May 5, 2017 8:48 a.m. ET

iHeartMedia is struggling to bring down the costs of its massive $20 billion debt burden as revenues continue to fall

iHeartMedia Inc. on Thursday followed through with its promise to include “going concern” language in its next quarterly earnings, with the warning in its first-quarter report of “substantial doubt” as to its ability to survive another year.

The biggest operator of radio stations in the U.S. is struggling with a $20 billion debt burden it took on as part of a $24 billion leveraged buyout of then Clear Channel Communications Inc. by private-equity firms Bain Capital and Thomas H. Lee Partners in 2008. The company is struggling to refinance or extend maturities on some of its borrowings and is currently pushing creditors to participate in a number of proposed exchange offers.

iHeartMedia has almost $350 million of debt coming due this year, and more than $8.3 billion of debt coming due in 2019. The owner of iHeartRadio and Clear Channel Outdoor had $365 million of cash at end March.

“Our current operating plan indicates we will continue to incur net losses and generate negative cash flows from operating activities given iHeartCommunications’ indebtedness and related interest expense,” the company said in its earnings release.

In the first quarter, revenue fell 2.4% and operating income fell 73%, as a gain on an asset sale in the year-earlier period was not repeated.

The big surprise in the quarterly numbers was an unexpected rise in expenses, which executives on the company’s earnings call failed to fully explain, said Tim Hynes, analyst at Debtwire. The company said its direct operating and selling, general and administrative costs jumped 11.2% in the quarter.

“They were pretty vague on the call and everyone had the same question: What caused expenses to go up so much?” said Hynes. “They said it related to media promotions and signing talent, but they were not specific.”

iHeartMedia may have booked extra expenses in the quarter to put further pressure on bondholders to participate in bond and loan exchanges, he said. The company is trying to persuade its creditors to accept a series of exchange offers that would allow it to refinance more than $14 billion of term loans and other debt, offering new debt, equity and ownership in Clear Channel Outdoor Holdings. After its lenders failed to take up that offer in early April, the company extended the deadline.

Drew McManigle, managing director of SierraConstellation Partners LLC, a financial advisory and turnaround firm, said the company is likely to be forced into some kind of restructuring, most likely one that includes a restructuring support plan, such as a prepackaged bankruptcy in which creditors are on board with a rescue plan before a filing is made.

“iHeart has a fundamental business model that probably isn’t all that viable,” he said. “The disruption in the marketplace is going to force them to rethink that model in the long term.”

McManigle noted changing consumer behavior among younger Americans, who are more likely to listen to their own downloaded music or use streaming services than radio. The death of local radio has exacerbated the trend, he said.

But the company is now in a dire state, with declining revenue, big losses and huge debt interest costs.

“I would be hard-pressed to believe the CFO doesn’t think they will hit the wall some time soon,” he said.

http://www.marketwatch.com/story/ih...to-suspicion-its-days-are-numbered-2017-05-04

 

[oldies76]

McManigle noted changing consumer behavior among younger Americans, who are more likely to listen to their own downloaded music or use streaming services than radio. The death of local radio has exacerbated the trend, he said.

But the company is now in a dire state, with declining revenue, big losses and huge debt interest costs.

“I would be hard-pressed to believe the CFO doesn’t think they will hit the wall some time soon,” he said.

Not surprising at all. If you enjoy hearing the same tired and overplayed repeated songs and generic programming and countless ad breaks, that takes away from the musical experience, then iHeart's for you, have at it. If you enjoy the endless possibilities of what your own iPod's, You Tube and the countless streaming services and internet stations there are to offer, like most people enjoy today, then yes, radio is in deep trouble. Of course, that's just one bite of the whole enchilada.

 

[TheBigA]

Not surprising at all. If you enjoy hearing the same tired and overplayed repeated songs and generic programming and countless ad breaks, that takes away from the musical experience, then iHeart's for you, have at it.

The fact is that iHeart has some of the most listened-to, most profitable radio stations in the country. This has nothing to do with programming or ad breaks. This has to do with debt they incurred by going private in 2008 just as the economy tanked.

The fact is that iHeart's streaming platform is also very successful. They're better positioned for the new media world that most other radio companies. Just this problem of a $20 billion debt. And by the way, the streaming companies like Pandora and Spotify are facing the same grim reaper. Just not as immediately as iHeart.

 

[davideduardo]

Not surprising at all. If you enjoy hearing the same tired and overplayed repeated songs and generic programming and countless ad breaks, that takes away from the musical experience, then iHeart's for you, have at it. If you enjoy the endless possibilities of what your own iPod's, You Tube and the countless streaming services and internet stations there are to offer, like most people enjoy today, then yes, radio is in deep trouble. Of course, that's just one bite of the whole enchilada.

The problem with your logic is that most people go to streaming services like Pandora and Slacker for the ability to create personalized or on-demand experiences. When we look at the on-demand statistics, we see that an even greater percentage of that listening is for the big hits. When we look at catalog material, very little "deep cut" and "lower charting" music is being consumed.

The difference, then, is in the business model. The streamers and on-demand services still do not have one that works. Radio has a working model, but it includes ads.

The real problem with this iHeart issue is that uninformed analysts believe that it's a radio issue, not just an iHeart issue. Radio has plenty of young adult listeners, and since pricing is based on delivery, it is an efficient medium. But the ill-informed think this is the death of radio when really it is just the debt of iHeart.

 

[TheBigA]

The real problem with this iHeart issue is that uninformed analysts believe that it's a radio issue, not just an iHeart issue.

Very true. In particular, the analyst who said iHeart's business model isn't viable. He obviously doesn't know about their streaming platform, their annual festival, or anything else they do besides on-air radio.

Compare the story in the OP with what RadioInk reported today:

"Radio revenues increased $27.3 million, or 3.8%, excluding political revenue. CFO Richard Bressler said it was the 16th consecutive quarter of year-over-year revenue growth for iHeart's radio stations, and he added that iHeart was outperforming its peers in the radio industry."

Sure you can say it's coming from a pro-radio trade publication, but that doesn't excuse MarketWatch from excluding it. The problem clearly isn't at the iHeart radio stations.

 

[Will_H_69_9]

i think what will most likely happen is either they get bought out by another media company, or gets bought out by a investment company to absorb the debts or split the company up to separate the under-performing side of the company from the profitable side of the company where the unprofitable side gets all of the debt and files for ch. 11 bankruptcy protection while the side making profit can continue without the risk of bankruptcy.

most likely, the company's gonna have to split up into two companies to save itself from it's own death.

 

[davideduardo]

i think what will most likely happen is either they get bought out by another media company, or gets bought out by a investment company to absorb the debts or split the company up to separate the under-performing side of the company from the profitable side of the company where the unprofitable side gets all of the debt and files for ch. 11 bankruptcy protection while the side making profit can continue without the risk of bankruptcy.

most likely, the company's gonna have to split up into two companies to save itself from it's own death.

What is not well understood is that iHeart and its lenders are playing a cat-and-mouse game.

"Cut the interest and discount the principal" says iHeart.

"No, pay us what you owe us" say the lenders.

"We will go Chapter 11 and then the court will decide what you get" responds iHeart.

"We can't take that big a haircut" say the lenders.

"Then we will give you equity".

"But we still want most of our money back".

"Not happening. We can go Chapter 11".

"Let's do some numbers..."

The enterprise is worth more alive than dead. Nobody will pay as much as it owes its lenders. So the solution is to negotiate the loans, transfer some equity and haggle on interest rates and terms.

Or, if that does not work, do a Chapter 11 reorganization under a court appointed receiver. In these cases, the company is not sold and much of the debt is discharged.

 

[secondchoice]

IHeart needs to find a favorable Court to file in. Some Bankruptcy districts are “friendlier” to debtors in certain industries than others. Both Delta and Northwest used Chicago even if they did not have major operation hubs, headquarters, or corporate charters in Chicago.

The major lenders need to “meet” and map out a strategy instead of being played against each other. The worst thing that could happen for a lender is to take a haircut, then the company files for bankruptcy. IIRC when the debts are presented to the judge, the reduced amount is presented. There is a possibility that your reduced amount will put you behind a person that did not agree to reduce his amount.

Like it or not the creditors are going to end up “owning” IHeart. They could take a 50% + write off and go on their way funding other buyout firms that destroy companies, or they could set up a “new” IHeart, turn their notes into a form of preferred stock where they get paid every quarter. Another option is to form a LLC where most of the positive cash flow directly back to them.

All of the above is just theory, what is IHeart’s EBDITA? If it is around 2 billion annually that would give a 10% return on $20 billion. 10% return on investment is not too horrible.

 

[TheBigA]

The major lenders need to “meet” and map out a strategy instead of being played against each other.

They already have, and they've agreed not to accept any deal.

From 3 weeks ago:

https://radioink.com/2017/04/24/report-iheart-lenders-put-road-block/

 

[hamster]

What happens to the lawsuits filed by IHeart if they do file bankruptcy ??? No I wasn't sued but I did hear Steffan Tubbs who is the morning guy at Denver's KOA an IHeart station in the past warning people that they better not speak out against Iheart and saying they will file for bankruptcy or risk being sued and I heard someone making a similar statement at Des Moines' WHO. I imagine that there were those who were unfortunately sued when they made a claim that IHeart will file for bankruptcy.

 

[TheBigA]

I imagine that there were those who were unfortunately sued when they made a claim that IHeart will file for bankruptcy.

I can't think of any examples. You have Jerry Del Colliano, who's been saying they're going bankrupt for ten years, and I don't think he's been sued over it. Then again, they had legal entanglements over the sale of his Inside Radio newsletter a long time ago.

 

[blackgold]

Buying up 1,200 radio stations and destroying local programming has caused this. I'm afraid that they'll have to sell back their stations to local groups and have them revive live and local radio. We can't stand this kind of radio today. Bring back live, local radio!

 

[TheBigA]

Buying up 1,200 radio stations and destroying local programming has caused this. I'm afraid that they'll have to sell back their stations to local groups and have them revive live and local radio. We can't stand this kind of radio today. Bring back live, local radio!

Blah, blah, blah. As has been pointed out, they own some of the most listened-to radio stations in the country, and also the most profitable. This is not a programming problem, but a debt problem. Two different things. Millions of people listen to their radio stations, regardless of what they do. Whoever ends up running iHeart, and I expect it to be the exact same people running it now, will run it exactly the same way, freed from the $20 billion of debt. If they just shout down some of their money losing AM stations, they might turn a profit. But I promise you that there are no local groups looking to spend millions on radio stations.

 

[davideduardo]

Buying up 1,200 radio stations and destroying local programming has caused this. I'm afraid that they'll have to sell back their stations to local groups and have them revive live and local radio. We can't stand this kind of radio today. Bring back live, local radio!

860 stations, exclusive of translators.

 

[gr8oldies]

Even if the unlikely came true, the stations would be run pretty much the same way. After the largest radio owner declared bankruptcy and auctioned off all of its stations, if any investors or lenders could even be found to revive dark radio stations (and they'd be dark for months or years), they would keep a super-tight lid on expenses. Expecting 6 full time jocks and 4 full time newspeople? Dream on. The number of people who consciously think" there's Ed on the radio. He's sitting in a little room downtown, sipping a fair trade latte from the locally owned coffee shop, ready to tell me everything I need to know" are slim and none.

 

[TheBigA]

The number of people who consciously think" there's Ed on the radio. He's sitting in a little room downtown, sipping a fair trade latte from the locally owned coffee shop, ready to tell me everything I need to know" are slim and none.

Those who think that way are mainly over the age of 60, hate everything that's popular today, especially the music on the radio, and feel the solution to iHeart's debt is to run fewer commercials. Ignoring the fact that it is their primary source of revenue.

 

[davideduardo]

Even if the unlikely came true, the stations would be run pretty much the same way. After the largest radio owner declared bankruptcy and auctioned off all of its stations, if any investors or lenders could even be found to revive dark radio stations (and they'd be dark for months or years), they would keep a super-tight lid on expenses. Expecting 6 full time jocks and 4 full time newspeople? Dream on. The number of people who consciously think" there's Ed on the radio. He's sitting in a little room downtown, sipping a fair trade latte from the locally owned coffee shop, ready to tell me everything I need to know" are slim and none.

I think the issue here is the lack of understanding of business bankruptcy.

Most bankruptcies go unnoticed by the public as they are simply court-supervised reorganizations of existing operations accompanied by a restructuring and, often, reduction of debts. Many of the other posters here think that bankruptcy means a dissolution of a business and the sale of its assets in some kind of wild going-out-of-business sale. Nothing could be further from the truth.

As you say, the stations that are making money will be kept exactly as they are. The ratings and the billings are the largest assets they have and a bankruptcy court will make sure that the cash-flowing stations are kept on track.

A bankruptcy court-appointed receiver might conclude that non-performing stations should be sold, but those would be ones in tiny markets or dog AMs or some rimshot FMs that get little audience and less revenue. But the big rated market FMs and the big signal AMs are not going to change a bit. Even with new owners, should that very unlikely event occur, the formats won't change.

 

[TheBigA]

Even with new owners, should that very unlikely event occur, the formats won't change.

And the new owners won't be small local groups, because they simply don't have access to the money it takes to run a station today.

 

[davideduardo]

And the new owners won't be small local groups, because they simply don't have access to the money it takes to run a station today.

Plus "small local groups" can't get financing.

Anecdotally, I looked at buying a number of stations to put together a little group and was told by the experienced lenders that unless I was in at least 4 to 6 diverse markets, the risk was too great. A smaller market (and I was looking in diary markets only) can be hurt by just one big local employer shutting down or by changes in government spending. A small group may be too dependent on a single station or two, and if challenged by competition, might loose significant cash flow. So lenders want a group to be in multiple markets with multiple stations. I did not want that much "real work" and did not want to risk as much of my own capital as might be required... so I discarded the plan.

Lack of financing was one of the problems radio had before consolidation. It was very hard to get money for groups to expand or to move to bigger markets.

 

[TheBigA]

Anecdotally, I looked at buying a number of stations to put together a little group and was told by the experienced lenders that unless I was in at least 4 to 6 diverse markets, the risk was too great.

Exactly. The FCC had a "localism initiative" a few years ago, where they were trying to get more local groups into ownership. During the hearings, it was pointed out that radio owners are not able to apply to the government for Small Business Administration loans. All they would need to do to solve this obvious problem would be for one federal agency to talk to another one. As we all see, it never happened. Try to run a small business without some help from the SBA. That wasn't a problem 50 years ago. It is now. Plus the regulations make it impossible to run a radio station without access to legal and engineering help. Both are very costly.