Cumulus Begins Chapter 11 Restructuring

Tom Taylor NOW — Cumulus still has miles to go to restructure its $2.3 billion in debt.

Two different observers say the terms Chapter 11 bankruptcy plan look like a “cramdown” of the junior debt — and one says “the junior debt is not yet on board.”

The company proposes to give the junior debt 16.5% of the equity in the “reorganized Cumulus.” While the senior debt claims the other 83.5%. How much is Cumulus worth, and who should get pieces of it, in the debt-for-equity restructuring filed in federal bankruptcy court?

Wednesday night’s Chapter 11 filing isn’t a “pre-pack,” or pre-packaged bankruptcy, where everybody has signed off on the terms going into court.

If the junior debt-holders don’t like the split, they could sue. That group (says the Wall Street Journal) includes Angelo Gordon & Co., Brigade Capital, Greywolf Capital and Waddell & Reed. Those firms hold the 7.75% notes which Cumulus chose not to make an interest payment on, last month.

That’s what tripped the 30-day grace period that would’ve brought trouble today, if CEO Mary Berner and the board hadn’t acted.

Under the “Restructuring Support Agreement” (here), 83.5% of the equity in “reorganized Cumulus” would go to holders of Cumulus loans — about $1.73 billion in face value.

That group includes Eaton Vance, Silver Point, Beach Point Capital, Symphony Asset Management, Franklin Mutual Advisors, Highland Capital and J.P. Morgan Chase. The RSA (restructuring) deal includes termination rights for all parties — another reason to believe that this isn’t a done deal.

Cumulus spent a whopping $5 billion building the company. And it’s worth…less than $2 billion today? Two of the biggest expenditures were the 2011 purchase of Citadel (which itself had emerged from Chapter 11 bankruptcy protection the previous year).

And the complicated 2013 acquisition of Dial Global, a building block of today’s Westwood One division. Current Cumulus CFO John Abbot mentions the “high acquisition prices” along with “subsequent poor performance” as keys to today’s trouble. Now comes the fight over the pieces.

Cumulus owes Nielsen about $6.65 million and nearly $1 million to the Broadcasters General Store, which would supply a lot of cap-ex equipment and other items.

Also due is $190,000 to the Oakland Raiders, $161,000 to CNN, and about $145,000 to Merlin Media. The Merlin debt would be LMA fees for Chicago’s classic rock “Loop” WLUP/97.7 and alternative WKQX/101.1. But by far the largest number on the list of “20 largest unsecured claims” shown by Cumulus is $637,314,000.

That’s owed to U.S. Bank, as the manager for the junior-debt group that’s sitting on the 7.75% senior notes.

One of the benefits of America’s Chapter 11 bankruptcy option is that it immediately helps the company conserve cash. Cumulus says it has ample cash for now, anyhow.

But NOW hears from one vendor who says “there are now two kinds of bills for Cumulus — one pre-Nov. 29, and now.”

Can Cumulus complete its restructuring in 180 days? That’s in the Restructuring Support Agreement — the company’s planning to emerge from Chapter 11 “no later than 180 days after the Petition Date.”

But again, the “consenting creditors” here may not include all the creditors, and there are termination rights. Some creditors could become “un-consenting,” and some clearly aren’t happy yet.

Here’s the restructuring committee of the Cumulus board — CEO Berner, Crestview principal Jeff Marcus, plus Ralph Everett, Ross Oliver, Jan Baker and Jill Bright.

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.