An investor group claims that iHeartMedia’s attempt in December to reduce its $20.7 billion debt burden violated its bond agreements and triggered a technical default on some of those notes.
iHeartMedia filed a lawsuit against the investors on March 7, seeking a temporary restraining order to block them from formally declaring the bonds in default, which the company says would lead to a cascading of as much as $15 billion in debt payments due within 60 days.
Instead of ruling on a more permanent injunction prohibiting the default, Stryker extended the restraining order and set a new trial date of May 16 to decide whether the San Antonio company has defaulted on its debt.
The question of whether San Antonio-based iHeartMedia technically defaulted on its credit agreements comes down to the value of the shares it transferred from one subsidiary to another on Dec. 3.
The answer, which was debated during a second day of hearings before the state district court in San antojio Tuesday, could have dire consequences for the nation’s largest radio and billboard company. IHeartMedia is suing some of its bond investors to stop them from formally declaring their debt in default, which would trigger quick repayment on up to $15 billion in bonds and force the company into bankruptcy.
All parties agree that iHeartMedia’s debt agreements allowed it to transfer up to, but not more than, $1 billion in assets without placing its financing in jeopardy.
The Express-News report the company was transferring the shares, in part, to use as collateral to issue new debt — the proceeds of which were intended to help pay down some of the company’s $20.7 billion in total outstanding debt. It’s existing debt was trading below par, or below the original selling price, allowing iHeartMedia to repurchase its debt at a steep discount.
iHeartMedia owns 89 percent of Clear Channel Holdings stock, which was trading at $5.16 a share on Dec. 3, which Fischel said provides the most accurate value of the 100 million shares.
The 100 million shares that were transferred, however, weren’t among the company’s 11 percent of outstanding stock that’s publicly traded. Cornell said those privately held shares would trade far higher if Clear Channel Outdoor Holdings was spun off as an independent company.
Using share values based on comparable billboard companies, including Lamar Advertising Co. and Outfront Media Inc., Cornell estimated the 100 million shares of Clear Channel Outdoors were actually worth between $7.57 and $10.32 per share.
The high end of that range possibly could push iHeartMedia’s transfer to Broader Media above the $1 billion threshhold that would trigger default in the bond contracts.
The trial, in which iHeartMedia seeks a temporary injunction against debt default notices, resumes today. It is being tried in state district Judge Cathleen Stryker’s court, without a jury. A decision is expected today which is when a temporary restraining order expires.