iHM Appears To Be Running Out Of Road

The Express-News in San Antonio reports troubles for the radio and billboard giant worsened last week after negotiations with bond investors to restructure the company’s debt broke down.

“The closer to 2019, the more power senior debtholders have” said Jack Kranefuss, senior director for corporate credit rater Fitch Ratings in New York. “It increases the chances of iHeart having to go through some sort of bankruptcy.”

iHM is trying to extend the maturity on some of its $20.8 billion in debt due over the next seven years, said Kranefuss, Fitch Ratings senior director. Almost half the company’s notes need to be repaid by 2019, according to company securities disclosures.

Sarah Gefter, senior analyst at Reorg Research, said iHeartMedia’s projected cash flow isn’t sufficient to repay the company’s debt without renegotiating new repayment terms.

The company’s best strategy would be to refinance maturing bonds and buy back others that are currently trading at a discount on the open market, some at around 70 cents on the dollar, Gefter said.

At some point, even selling its 850 radio stations won’t be enough to repay the company’s crushing debt load under its current terms because the company is too highly leveraged, Kranefuss said.

The company’s debt-to-assets ratio, which shows how much leverage a company has, is 11.4, Kranefuss said. But senior debtholders won’t be comfortable with the company issuing new debt to repay upcoming maturing debts until the multiple is reduced to about six, he added.

iHM has been in talks with bondholders since May, trying to renegotiate the terms of roughly $6.3 billion in debt due over the next 2½ years.

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The lead negotiator for the bondholders, Franklin Resources Inc.’s subsidiary Franklin Advisers Inc., is the largest holder of the loans maturing through 2019.

On June 22, some bondholders led by Franklin issued a proposal to iHeartMedia that would have reduced interest rates and extended maturities by a year. In exchange, the bondholders sought to be made whole with 100 percent of loans repaid if iHM did not repay other unsecured bonds, including some with 2018 maturities, the company disclosed in a securities filing last week.

The company’s future financial health is shaky, Kranefuss said. The company isn’t growing fast enough to warrant issuing new debt to refinance what’s maturing, he said.

Cash flow is improving, he said, “but not fast enough.”