According to the San Antonio Express-News, it’s a technical case in which the court is weighing whether the struggling media conglomerate, saddled with $20.8 billion in debt, violated its credit agreement with bondholders. If state District Judge Cathleen Stryker rules against iHeartMedia, it could kick off a cascade of events that would quickly trigger technical default on as much as $15 billion of its bonds and put iHeartMedia at risk of bankruptcy, company executives have said in court.
“It can be in the best interests of both sides to find common ground,” said Jacob Frenkel, chairman of the government investigations and securities enforcement practice at Dickinson Wright law firm in Washington, D.C. “Closure can be in everyone’s favor, including a company interested in issuing a new (debt) offer.”
iHeartMedia employs roughly 19,500 workers and owns more than 850 radio stations in 150 U.S. markets. It also owns 90 percent of billboard giant Clear Channel Outdoor Holdings Inc. in San Antonio.
The case revolves around a Dec. 3 intercompany transfer of stock from one subsidiary, Clear Channel Outdoor, to another subsidiary. Bond investors say the transaction violated their agreement with the company, placing it in technical default on its bonds even though iHeartMedia is current on all its debt payments.
“If iHeart is in default, then many, many companies would find themselves in default,” iHeartMedia lawyer Kevin Huff said in court Monday, adding that similar share transfers are commonly used by companies in the United States.
While shareholders own a portion of a company’s assets, a bondholder owns a portion of a company’s debt and relies on a regular stream of interest payments on the bonds, similar to a mortgage payment to a bank. Corporations, however, can technically default on their bonds, even if they are current on all their payments by breaking the rules outlined in their debt agreements.
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