iHeartMedia Faces Costly Reckoning on Debt

iHeartMedia Inc is likely to file for bankruptcy protection as early as March after a decade of ballooning debt and faltering growth, drawing the curtain on one of the biggest leveraged buyouts before the 2008 financial crisis, reports The Wall Street Journal.

An insolvency would put iH's 856 terrestrial stations and its billboard-advertising business into the hands of creditors.

For five years, the company has spent more on debt payments than it earns. It has juggled more than $20 billion in debt during much of the past 10 years, repeatedly pushing the due dates further into the future through refinancings and debt swaps.

The world was different in 2006 when private-equity firms Thomas H. Lee and Bain Capital entered into deal talks with Clear Channel Communications. Started by Lowry Mays in 1972 as a single radio station, reinforced by outdoor advertising and concert promotion businesses.

The $26.7 billion buyout closed in 2008, on the eve of the financial crisis. Bain and THL had loaded up iHeart with more than $13.5 billion of new debt to fund the acquisition, on top of the company’s existing $8 billion load, just as markets seized up and advertising rates cratered.

The music landscape too was changing. In 2006, iHeart’s main competition came from satellite radio and iPods; later it would have to contend with Spotify AB, which launched its on-demand streaming service in the U.S. in 2011, and with online advertisers that were already siphoning off market share of print and broadcast media companies.

Wall Street Journal Graphic

Since the buyout, iHeart has been running in place, eking out marginal growth in revenues in its radio business. Still, it has performed better than its peers, Cumulus and CBS Corp.’s radio business.

WSJ reports snalysts see iHeart’s foray into streaming—which has failed to generate meaningful profits even for Spotify or Pandora—as a defensive move rather than a growth opportunity. As the appetite for music on-demand grows, iHeart is hoping to keep listeners from migrating to competitors while also recouping some of the ad dollars flocking to digital platforms.