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Friday, February 2, 2018

Time Ticking Towards Possible iHM Bankruptcy Filing

iHeartMedia Inc. which failed to make a $106 million bond payment due Thursday, now has 30 days to work out an agreement with investors to restructure its debt or face bankruptcy.

iHM said it made a conscious decision not to make the payment “as active discussions continue among its lenders, noteholders, and financial sponsors regarding a comprehensive debt restructuring.”

The company said the move won’t automatically trigger a default on its bonds as it used a grace period that gives it 30 more days to make the interest payment.

The company’s been teetering on the edge of insolvency for much of the last year. It launched an offer almost a year ago — on March 15 — to try to restructure $14.6 billion of its more than $20 billion in debt by exchanging it for bonds with longer maturities and higher yields.

According to The San Antonio Express-News, the company hasn’t had much luck in negotiations with some of its bondholders and lenders on a possible pre-bankruptcy deal. Some investors have reportedly been reticent to give the company any concessions, figuring they will recover more money if iHeart files for bankruptcy. The investor group, in fact, rejected its latest distressed debt exchange offer, the company said in a December filing with the Securities and Exchange Commission.

Marketwatch is reporting the company likely has the cash to make the payment, having made an interest payment of more than $50 million in January, but is using the 30 days as a strategic tool, Crystall said, adding that iHeart seems to be getting closer to a deal with creditors.

“At one point, they were willing to give 50% of equity to their creditors, but in the last filing the number was over 90%,” he said. “So clearly they are willing to give way on one sticking point. It may be that the talks are stalled, so if they hold off on paying the coupon for 30 days, they may reach an agreement and stay out of court.”

The company is likely also considering that in March it will publish its 10-K filing with the Securities and Exchange Commission, and its auditor is likely to include “going concern” language as it has in the last few filings. IHeart is not expected to be able to make payments due in 2019, when it is facing a big maturity wall in the form of two term loans valued at $6.3 billion, he said.

Going-concern language “would trigger defaults anyway, so they may be thinking, ‘Why make the payment now, when we are close to resolution or, if not, will have to file for bankruptcy? May as well hold on to the $106 million.’ ”

The company’s underlying business is improving and could be sustained if the company succeeds in restructuring its debt, said Crystall. If the tax overhaul enacted in December provides an economic boost, the radio business may attract more advertising dollars, which would provide a further lift to the business.

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