Friday, February 5, 2016

The Largest U.S. Radio Operator Is Saddled With $20 Billion Debt

Written by Laura J Keller — IHeartMedia Inc., the radio broadcaster struggling under $20.6 billion of debt, is considering a potential bond or equity offering to pay off its most-pressing obligations and buy time to improve earnings, according to a person with direct knowledge of the matter.

The company would sell securities in one of its units to retire $1.4 billion of bonds the parent is responsible for paying, said the person, asking not to be identified because the discussions are private. IHeart, which is discussing the plans with its private equity owners, would offer existing debtholders the option to exchange into new obligations from a subsidiary called Broader Media LLC, the person said. Creditors would receive higher-ranked claims on some of IHeart’s assets than they have now.

IHeart is also discussing an alternative plan to use proceeds from a Broader Media security sale to purchase the parent company’s bonds in the open market, the person said. The company, owned by Bain Capital Partners and Thomas H. Lee Partners, is looking to take advantage of low market prices for its debt, the person said.

Liability Management

The cheapest of the obligations being targeted for paydown traded Wednesday at less than 39 cents on the dollar, after losing more than half of their value since February, according to data compiled by Bloomberg.

“It is not lost on us where debt-trading levels are,” Brian Coleman, IHeart’s treasurer, told analysts on a Nov. 5 conference call. “We do feel there are opportunities for liability-management activities."

Wendy Goldberg, a spokeswoman for San Antonio, Texas-based IHeart, declined to comment. Charlyn Lusk, a spokeswoman for Bain at Stanton Public Relations & Marketing, and Matt Benson, a Thomas H. Lee Partners spokesman at Sard Verbinnen & Co., declined to comment.

Mega LBO

The business was bought by Bain and Thomas H. Lee in July 2008 in one of the last mega leveraged buyouts before the credit crisis. The firms paid $24 billion for the radio and billboard company that spawned IHeart, formerly known as Clear Channel Communications Inc. and has been battling ever since under the debt taken on for that deal.

The deal now being discussed would take care of borrowings coming due before 2019, when the company runs into a wall of $8.3 billion in senior debt, 40 percent of total obligations. IHeart has been tapping healthier divisions as it seeks to boost cash at the parent company -- which is responsible for paying back three-quarters of total borrowings -- and units it controls.

IHeart’s plan would erase $192.9 million of 5.5 percent unsecured notes due December 2016 that are already considered current, the person said. The proposal is also intended to retire the company’s $190 million revolving loan due December 2017, the $850 million of 10 percent unsecured notes due January 2018 and the $175 million of 6.875 percent unsecured notes due June 2018.

The nearest-term 2016 notes climbed 1.25 cents to 96.25 cents on the dollar on Jan. 28, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Shifting Assets

The company has been shifting assets into Broader Media since December in a bid to expand its options for tackling some of IHeart’s debt early, Philip Brendel, a senior credit analyst at Bloomberg Intelligence, wrote in a Dec. 16 note. Putting new assets into Broader Media could help sell a new bond, and proceeds from the sale could be used in a way that bolsters the ability to retire debt obligations, according to Brendel.

On Dec. 3, IHeart gave the unit $516 million of common stock in Clear Channel Outdoor Holdings Inc.’s, the radio division’s parent company, according to a Dec. 10 regulatory filing.

After it became a shareholder, Broader Media collected some of a dividend taken later in December from proceeds of IHeart’s most recent bond deal, a $225 million secured note issued from international unit Clear Channel International BV. It stood to gain $65 million from the dividend, according to a Dec. 22 research note from Citigroup Inc. analysts led by David Phipps.

Clear Channel Outdoor shares closed at $5.48 Wednesday. They have lost more than half of their value in the past nine months.

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