Tuesday, February 27, 2018

Liberty Media Makes Bid For iHeartMedia

Liberty Media Corp. is making an 11th hour play for iHeartMedia Inc., offering to pump $1.16 billion in cash into the nation’s largest radio broadcaster in return for 40% stake in the reorganized company following an eventual bankruptcy filing.

A deal between iHM and Liberty, which owns Sirisu XM, presents the possibility that John Malone could combine the biggest radio broadcaster, scrubbed of billions in debt after bankruptcy, with the leading player in satellite radio.

“This is one of the leading visionaries of the tech and media industry coming and saying I have a plan for this company,” said Lance Vitanza an analyst at Cowen.

The Wall Street Journal reports news of Liberty’s proposal, disclosed Monday by a group of iHeart lenders and bondholders, comes as a 30-day grace period among the company and its creditors is set to expire. The clock began ticking for iHeartMedia on Feb. 1 after it missed an interest payment to bondholders.

iHM has been in talks with its largest creditors for months about restructuring more than $15 billion in debt at the company’s radio business.

The debt is a legacy of a $26.7 billion buyout by private-equity firms Thomas H. Lee and Bain Capital. The 2008 buyout came on the eve of the financial crisis just as markets seized up and advertising rates cratered.

Despite the potential benefits of the merger, there is no certainty that a merger would survive the often-contentious bargaining sessions played out in bankruptcy court.

“There’s a lot of deal risk still here,” Mr. Vitanza said. “I think some of iHeart’s bondholders understand the potential power of a merger between iHeart and Sirius, but not all creditors understand that."

Liberty Media has built a position in iHM’s debt in an effort to gain a foothold in the company’s restructuring, according to Monday’s announcement.

The company’s debt gained a few points on the news, with the company’s 9% priority guarantee notes due 2019, up 3.125 points to 78.375 cents on the dollar, according to MarketAxess. The gains are muted, however, by skepticism over whether the deal ultimately gets done, Mr. Vitanza said.

The NYPost believes iHM will go into default when the grace period for that payment ends Friday.

The biggest iHM creditor, Franklin Resources, is offering iHeart’s private equity owners — Bain Capital and Thomas H. Lee Partners — about a 1 percent recovery on their $4 billion equity investment if they agree to an out-of-court or prepack restructuring, according to The Post citing a source.

The owners instead want about a 4 percent recovery in such a restructuring.

In a straight-up Chapter 11, the owners will be wiped out.

“It’s hard for me to understand what Bain is doing,” the source said.

Since 2017, Bain has watched its Gymboree and Toys R Us file for bankruptcy.

Liberty Media President and CEO Greg Maffei believes in terrestrial radio, and even if he does not buy iHeart now may bag the company later in a bankruptcy process, the source said.

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