Analyst: iHM Stuck Between 'Rock And A Hard Place'

iHeartMedia Inc. decided not to repay a portion of a $250 million bond payment due Thursday in a risky and unusual move to buy the beleaguered radio giant more time to restructure its crushing debt load.

The company announced plans Tuesday to repay $192.9 million owed to outside investors while withholding payment on $57.1 million in notes held by subsidiary Clear Channel Holdings Inc. — money it essentially owes itself.

In a series of complex bond deals negotiated before iHeartMedia was purchased in a leveraged buyout in 2008, the company agreed to award extra collateral to investors in bonds issued before the buyout under certain circumstances that have finally come to bear.

According to mysanantonio.com, the company agreed to pledge extra collateral, called a “springing lien,” to some bondholders if iHeartMedia’s total amount of outstanding “legacy notes” dropped below $500 million.

The company had about $5 billion in legacy debt at the time of the sale that has since been paid down to about $725 million. If iHeartMedia repaid all of the $250 million due in full on Dec. 15, its legacy debt would drop below that threshold and trigger the extra collateral requirements.

“The situation places iHeart between the proverbial rock and a hard place: iHeart debtholders who would obtain the additional collateral have demanded that the springing lien be triggered,” the company said in a lawsuit filed Monday in Texas state court here. The company seeks to block its trust banks from forcing iHeartMedia to pledge the extra collateral. Trust banks act as agents on behalf of debt investors, collecting and distributing bond payments. “By contrast, iHeart debtholders who would not obtain the additional collateral have demanded that the springing lien not be triggered.”

The company, which is the largest U.S. billboard advertising company and operates more than 850 radio stations, said it “likely faces litigation not matter what action it takes.” IHeartMedia had $20.5 billion in total debt outstanding at the end of the third quarter.

“They have the money, so it’s not like they don’t have the ability to pay themselves back. They’re choosing not to,” said Seth Crystall, senior credit analyst with Debtwire.

The move allows iHeartMedia to hold on to physical assets such as radio broadcasting towers and billboards, Crystall said, which could be used to take on more debt in the future.

“At this point what they’re doing is continuing to operate,” he said. “They’re looking at ways to kind of survive long enough to give themselves the opportunity to have other options.”