Posted Wednesday, November 29, 2017 by RODNEY HOemail@example.com on his AJC Radio & TV Talk blog
Atlanta-based Cumulus, the second largest radio company in America, has filed for Chapter 11 bankruptcy protection in a structured agreement with lenders that will help wipe away a sizable portion of the company's debt.
The company owns 446 radio stations nationwide in 90 markets, including several stations in Atlanta: top 40 Q100, Rock 100.5, country station Kicks 101.5, rock station 99X, classic hip-hop OG 97.9 and NewsRadio 106.7.
Cumulus has been weighed down by debt since it purchased Citadel Broadcasting in 2011 valued at the time for $2.5 billion. The Dickey family which started and ran the company didn't invest properly in programming and labor. The result: ratings and revenues suffered. Its financial woes led to Lew and John Dickey losing control of the company in 2015.
Since Mary Berner took over, she has reduced employee turnover from 50 percent a year to 24 percent and tangibly boosted morale. She wrote a column in Chief Executive magazine in September laying out how she fixed what she dubbed a "toxic culture" featuring "lousy systems, crumbling infrastructure and unhappy employees." While the rank and file hadn't gotten raises in years, she wrote, top management enjoyed private planes, expense accounts and lavish offices.
She sold the private plane and gave merit raises to employees. Senior management calls every employee on their anniversary to thank them for their service and welcomes every new employee. And they make sure to respond to employee complaints within 48 hours.
Revenues in the third quarter grew slightly year over year from 2016 with $287.2 million and $1.3 million in net income. But in the tough radio business, any growth is a good sign.
She has also cut down the debt to around $2.3 billion.
But Berner said in a press release, "the debt overhang left by previous years of
underperformance remains a significant financial challenge that we must overcome for our operational turnaround to proceed.”
So Cumulus negotiated a deal with a bulk of its senior lenders through the bankruptcy court in New York. The plan will cut its debt by more than $1 billion, the company said in a press release.
She reassured the public that "we have ample cash to support our operations and service our advertisers, vendors and affiliates during this period, and we look forward to becoming an even stronger partner to all of them when we complete this important phase of our turnaround strategy.”
The company defaulted on a $23.6 million debt payment in November 1, setting off a 30-day grace period that was about to run out Friday.
Cumulus said once the bankruptcy court approves its plan, its existing secured lenders will become new majority shareholders and the current common stock (worth about 15 cents per share right now) will be cancelled. Its stock was delisted last week from NASDAQ and will be available via OTC. The company will stop paying interest on bonds or interest that will accrue on bonds during the financial restructuring process, according to the posting.
Cumulus will hand over all of the company’s equity to its creditors. The secured lenders will get most of that – an 83.5% equity stake –for reducing the $1.729 billion Cumulus owns them in term loans to $1.3 billion. But the unsecured creditors, mostly made up of bondholders, won’t fare as well. The more than $600 million Cumulus owes them will get wiped out in exchange for a 16.5%, equity stake in the company, essentially giving them pennies on the dollar. All told, Cumulus will cut its debt roughly in half and dramatically deleverage its balance sheet.
InsideRadio noted that by zeroing out the stock, majority shareholder Crestview Partners and the Dickey clan get nothing.
Josh Friedman, a legal analyst at Debtwire, a distressed research firm in New York, said the deal seems reasonable given Cumulus' circumstances, calling it a "step in the right direction." He said Cumulus attempted a deal with bondholders to forestall a bankruptcy but that fell through.
"You have less to pay off in loans in the future," he said. "Annual expenses in interest will be reduced. They will have a greater ability to invest in their business or make an acquisition to raise new debt. They could spend more on on-air talent or increase the workforce. Now they have more leeway in which to operate."
Bottom line: "This could be a kick start for a successful turnaround for a beleaguered company in what is considered a beleaguered industry."
The largest radio company IHeartMedia - which operates several Atlanta stations such as Power 96.1, 94.9/The Bull and Radio 105.7 - is also suffering from debt overload and seeking to restructure its financial situation with its lenders. Its situation is arguably even worse than Cumulus and bankruptcy looms.
The company has lost money in 29 of the past 30 quarters, including $248 million in the third quarter. Its debt exceeds $20 billion. Friedman said a bankruptcy filing is almost inevitable in this company's case.
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