Report: Debt May Bury iHM, Cumulus

Cumulus Media Inc. and iHeartMedia Inc., the two biggest U.S. radio station operators, are still grappling with creditors while online music services poach away audiences, advertisers and revenue.

Bloomberg reports losses and leverage are climbing, putting pressure on the broadcasters to cut a deal with lenders now, before the clock runs out. If they don’t, the two companies could slam headlong into a wall of debt coming due by 2019 that collectively tops $10 billion.

“They’re going to need some help,” said Avi Steiner, a JPMorgan Chase & Co. high-yield media credit analyst. “A better balance sheet would help deal with the secular changes in radio.”

At Cumulus, creditors led by Franklin Resources Inc. have hired PJT Partners Inc. to advise them on talks with the company, said people familiar with the matter, who asked not to be identified discussing confidential information. Millstein & Co. and Kirkland & Ellis represent the company, Bloomberg previously reported.

PJT is also working with a group of Franklin-led creditors at iHM, which has been embroiled in lawsuits with some of its holders as it looks for ways to restructure its debt. Spokeswomen for PJT and Franklin declined to comment.

iHeart, whose total debt tops $21 billion, has posted eight years of losses, and Cumulus, which owes $2.4 billion, lost half a billion dollars last year, more than seven times its market capitalization. Shares of both have plunged more than 80 percent in two years and their debt, already junk-rated, may be downgraded again by S&P Global Ratings.

One reason for the pressure is the 3 percent decline in advertising revenue for traditional radio stations in 2014 and 2015, while digital ad revenue grew 9 percent and 5 percent in those years, according to the Radio Advertising Bureau. Online rivals such as Pandora Media Inc., Spotify Ltd. and Apple Inc. are adding listeners rapidly, with Spotify climbing from 40 million active users in 2014 to more than 100 million as of June, the company said.

“iHeartMedia is not threatened by digital , it is digital -- we have fully embraced it and have taken a leadership position,” spokeswoman Wendy Goldberg, said by e-mail. San Antonio, Texas-based iHeart has the fastest-growing digital radio service in the U.S. and plans to launch an on-demand offering in January, she said.

Long-term debt at Cumulus has ballooned from less than $600 million in 2010. That year, the Atlanta-based company formed a partnership with Crestview Partners LLC, a New York-based private-equity firm that specializes in media. The goal was $1 billion of radio investments -- a number surpassed in 2011 when Cumulus acquired Citadel Broadcasting Corp.

The deal was funded with more than $2 billion of bank debt and a sale of shares to Crestview, which is now the biggest equity holder with a 28 percent stake. But in the years that followed, Citadel’s core assets underperformed, as did those of Westwood One, acquired in 2013. The company named Mary Berner chief executive officer a year ago, and a shift in strategy led to higher costs, lower earnings and a spike in leverage.