iHM Ends Talks With Creditors As Hearing Starts

iHeartMedia Inc. said it terminated talks with creditors including D. E. Shaw, Canyon Capital, Franklin Advisers and Franklin Mutual to settle a lawsuit over a December transfer of stock in its billboard unit from one subsidiary to another.

Absent a deal, a hearing over the transfer began Monday in San Antonio, Texas, state court with statements from iHeartMedia’s lawyer.  According to Bloomberg, he warned that if the creditors are allowed to issue default notices because, as they claim the transfer violates debt covenants, a cascade of additional debt repayment obligations will be triggered.

Within 60 days of the default notices’ being issued, $12 billion of debt will be “all due and payable that day,” Kevin Huff, the lawyer, said at the hearing. “I think you know what the consequences of that are.”

iHeartMedia’s noteholders denied they were trying to push the company into bankruptcy.

“Nothing could be further from the truth,” said Bruce Bennett, a lawyer for Franklin Advisers, one of the hedge funds seeking to issue default notices. “Much of iHeart’s debt is trading at a big discount because the market is concerned it won’t be paid.”

The nation’s largest radio-station owner is battling 15 creditors, which claim iHeartMedia is in default on billions of dollars in publicly traded debt. The debt holders allege the radio conglomerate improperly transferred shares valued at more than $500 million into a subsidiary beyond the creditors’ reach. IHeartMedia sued to block notices of default the creditors plan to issue.
Debt Burden

The broadcaster, which is weighed down by more than $20 billion of debt, claims language in its debt covenants “unambiguously permitted” the asset shift, according to its complaint.

Disallowing the transfer “guts the flexibility of the company,” Huff said.

The shift, which he called a permitted investment under the loan covenants, would let iHeartMedia capitalize on an opportunity to retire high-cost debt early for pennies on the dollar, he said.

The case is IHeartCommunications Inc. v. Benefit Street Partners LLC, 2016 CI 04006, District Court of Bexar County, Texas (San Antonio).