Complex iHM Debt Trial Awaits Ruling

The judge’s verdict in the corporate debt trial of San Antonio-based iHeartMedia Inc., expected early this week, will be a simple either/or choice, according to the Express-News.

Either allow a group of bondholders to file default notices against the debt-laden radio, billboard and digital giant or block the creditors from pushing the company to the brink of bankruptcy.

But the arguments during last week’s contentious testimony that concluded Friday were less simple, delving into the intricacies of the high-yield corporate debt arena.

“There’s a disagreement in the interpretation” of the bond rules, iHeartMedia lawyer Kevin Huff acknowledged.

The conflict arises from iHeartMedia’s transfer Dec. 3 of 100 million shares of its billboard subsidiary, Clear Channel Outdoor Holdings Inc., from a holding-company subsidiary to another subsidiary.

The company’s aim was to raise new debt to buy older company debt trading on capital markets at deep discounts, in some cases at 50 cents on the dollar.

Judge Cathleen Stryker

With total iHeartMedia debts totaling $20.75 billion, buying back discounted debt would boost the company’s cash-liquidity position, giving iHeartMedia the chance to extend its debt-repayment schedule, iHeartMedia lawyers told state District Judge Cathleen Stryker.

But the Dec. 3 action angered a group of bondholders. They filed notices of default March 7 against the company, stating the transfer of shares was improper because it removed the collateral needed to support the value of their bonds.

Huff said iHeartMedia has been harmed by the threats of default notices that started early this year and will continue to be harmed unless the court rules to block further default notices.

Darren Davis, president of iHeartMedia’s networks group, said the company is missing business opportunities because of uncertainty caused by the news of default notices.

“If we are seen as a company taking out debt and don’t repay them, that’s not a good thing,” Davis said. He added that the company has lost contract opportunities because it cannot hire hard-to-find technology talent it needs to run its operations.

“A clear signal needs to be sent to the markets that the company is not in default,” Huff said.

The company has said in SEC filings that if it does not receive the permanent injunction it seeks to block future default notices, it will have 60 days to take actions to avoid bankruptcy that would follow if an avalanche of debt repayments from many other bondholders is triggered, possibly totaling more than $15 billion.

One of those options is moving the 100 million shares back to the control of the bondholders.