Deals: New Suitors May Emerge For iHM After Split

iHeartMedia Inc. and Clear Channel Outdoor Holdings Inc. finalized their long-anticipated divorce that will see Clear Channel spun out when iHeart emerges from bankruptcy early next year.

According to Bloomberg, the separation frees Clear Channel from constant demands for cash from private equity-backed iHeartMedia, which used the outdoor advertising company to shore up its own balance sheet. iHeartMedia in turn emerges as a leaner company that can capitalize on its dominance in the radio broadcasting space -- and as an attractive target for a potential buyer. Clear Channel, too, has attracted potential suitors.

iHM controls Clear Channel’s board, top management and most of its common stock, which enabled the parent to arrange an intercompany loan for itself that totaled about $1 billion by the time iHM went bankrupt in March. Clear Channel will gain its independence and remains solvent, but $850 million of that loan won’t be repaid.

“The way things were was not good strategically,” Philip Brendel, a distressed debt analyst at Bloomberg Intelligence, said. “This is like erasing the chalkboard.”

iHeartMedia filed for bankruptcy with $20 billion of debt and a creditor-supported plan that included a spin-out of Clear Channel. Although Clear Channel never filed for bankruptcy itself, iHM held an equity stake of about 90 percent in Clear Channel. Private equity owners Bain Capital and Thomas H. Lee Partners loaded the largest U.S. radio broadcaster up with debt as part of its 2008 leveraged buyout.

Under a reorganization plan that a federal judge will consider next month, iHM would be taken over by senior lenders and shed about $10.3 billion in debt.

iHM’s emergence from bankruptcy was contingent on reaching a settlement with some of Clear Channel’s minority shareholders, who have sued to recoup their losses associated with the intercompany loan. The company won initial approval this week from the bankruptcy court for an accord.

The radio giant likely remains a target for a strategic buyer such a Apple or Liberty Media Corp. after its emergence from bankruptcy, but that activity likely won’t heat up until bankruptcy is well behind it, Brendel said. Liberty Media bid $1.16 billion for 40 percent of the company in June, but iHeart and its creditors rejected the bid as insufficient. The radio company said at the time it was still open to offers .