Report: Bankruptcy Threat 'Disruptive' For iHeartRadio

iHeartMedia Inc.’s internet music service has struggled to calm industry partners, lenders and employees spooked by the bankruptcy threat created by bondholders’ attempt to declare $6 billion in senior notes in default, a top executive testified in Texas.

“It’s disrupting our operating business every day,” Darren Davis, president of iHeartRadio, said in the second day of a state-court trial in San Antonio, reports Bloomberg.

Davis told the judge that the company’s line of credit was recently reduced from $1.5 million to $50,000, hampering its ability to quickly respond to market opportunities. And two of its largest manufacturing partners, who offer iHeartRadio as an integrated feature of products like televisions and cars, also claim to be “very concerned”’ about sticking with a company rumored to be in financial trouble, he said.

Davis said he feared that at least one of the company’s partnerships wouldn’t survive any potential bankruptcy “based on conversations we’ve had.”

Davis testified to the damage done by what the media giant calls a “whisper campaign” by certain senior lenders who oppose the company’s shift of $500 million in shares of its outdoor-advertising unit to a subsidiary beyond the lenders’ reach. The company claims the move was specifically allowed under the loan agreements and will save millions in interest expense by letting iHM buy back some debt at a discount when company shares are trading at relative lows.

Darren Davis

The senior creditors in February threatened to call defaults on about $6 billion in priority guarantee notes if the company didn’t roll back the asset shift. iHM has told the judge those defaults would trigger calls on an additional $6 billion or so in debt and probably tip the company into bankruptcy.

The senior creditors complain iHeart’s transfer of Clear Channel Outdoor Holdings shares to a different subsidiary violated loan terms and drained assets that could be used to repay roughly $423 million in debt that is due in the next two years on $20 billion in debt. IHeart hasn’t missed any debt payments, and company executives previously testified the company could become cash-flow positive if allowed to carry out the refinancing the share transfer would make possible.

“We’ve had $20 billion in debt for the last eight years, and we’ve never had any bankruptcy threat until the last 60 days,” Davis told Texas State Judge Cathleen Stryker of San Antonio, who is trying the dispute without a jury. “I know what’s coming due in the next two years, and I know we’ve got plenty of money to make those payments.”

“In the digital space, you’ve got to be growing your audience by 20 percent to 30 percent a year or you’re seen as a quaint service that’s found its place,” Davis told the judge. No digital brand can compete if it is viewed as stagnant, especially in the international market, he said.

According to Bloomberg, Davis told the judge the default threat has also kept skittish young job candidates from joining the company, because of the drumbeat of negative news bombarding their social media accounts. For example, iHeart recently failed to attract the software engineers it needed to code a new service that will soon be offered by competitors.