Just ahead of debt default, the nation’s second-largest radio group yesterday filed for bankruptcy while offering a restructuring plan to reduce debt by more than $1 billion. “Our existing secured lenders will become our new majority shareholders.”
Tom Taylor Now — Just how this restructuring with lenders will work is unclear, but accomplishing it by Friday’s deadline was imperative. Dec. 1 would’ve brought an “event of default.” The pressure probably helped all sides agree to a re-structuring package that was filed at 7:05 last night at the U.S. Bankruptcy Court in New York.
Cumulus reassures everybody — including employees and clients — that it “expects all operations, programming and sales to continue as normal.” That’s what Chapter 11 is about, giving companies time to reorganize. Cumulus won’t need any bankruptcy financing (a good thing).
While the company says that it’s “entered a Restructuring Support Agreement with certain of its secured lenders, among others, holding approximately 69% of the company’s term loan, to reduce the company’s debt by more than $1 billion.” The company’s not using the term “pre-packaged bankruptcy.” Though the features sound like one.
Cumulus avoids calling this thing a “debt-for-equity” agreement, just a “restructuring.” But it sounds like that’s what’s happening.“Our existing secured lenders will become our new majority shareholders.”
The company says the “CMLS” common stock will be “cancelled and will not receive a recovery fee in the re-structuring.” That hasn’t happened yet, though, and the stock will continue to trade — for now — on the over-the-counter OTCQX.
If you’re a bondholder, the company says “we do not expect to pay interest on bonds or interest that will accrue on bonds during the financial restructuring process.” It was a missed interest payment back on November 1 that ushered Cumulus toward a more intense part of the process.
Cumulus said it voluntarily skipped paying $23.6 million in interest due on Nov. 1, which started the clock going toward a potential Dec. 1 “event of default.” Cumulus has about $2.3 billion in debt going into this Chapter 11 experience. The term loan is about $1.7 billion and there are $610 million in 7.75% senior bonds.
This is probably what CEO Mary Berner was brought in to do. She’d led Readers Digest through a more painful (and more lengthy) process, and that experience may be what attracted the board to Berner, as a replacement for co-founder Lew Dickey, two years ago.
No doubt she’s learned plenty about the radio business and she’s proud of her four-pronged turnaround plan. But addressing the Cumulus mountain of debt was essential.
A healthy Cumulus is good for not only its stakeholders, but the entire radio business — just as a healthy Entercom/CBS Radio is good for the industry. Now there’s the very large elephant in the room — iHeart, and its more than $20 billion in debt. It’s a far larger company than Cumulus, with much more developed clusters. But its debt is almost 10 times that of Cumulus. There’s a good FAQ rundown from Cumulus about this Chapter 11 experience posted here.
Tom Taylor Now is a daily newsletter covering the radio industry. Taylor can be reached at [email protected]. This story is posted here with permission.