Who Will Control The New Audacy?

Audacy filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Texas on Sunday, the company announced.

The Business Journal reports the bankruptcy filing comes after the Philadelphia-based audio content provider reached a restructuring deal with a “supermajority” of its debtholders that will reduce most of its $1.9 billion in debt, according to Audacy. The creditors, in turn, would take control of the company.

Audacy said it does not expect any operational impact from the restructuring, and trade and other unsecured creditors will not be impaired. The move had been expected since a report of the prepackaged bankruptcy deal surfaced last week.

The company owns more than 200 radio stations across the country and has faced sagging advertising revenue and rising debt since its 2017 acquisition of CBS Radio.

David Field

Chairman and CEO David Field said Audacy has executed a strategy to expand beyond radio and diversify into podcasting, audio networks, live events, digital marketing and direct-to-consumer streaming.

“While our transformation has enhanced our competitive position, the perfect storm of sustained macroeconomic challenges over the past four years facing the traditional advertising market has led to a sharp reduction of several billion dollars in cumulative radio ad spending,” Field said in a statement. “These market factors have severely impacted our financial condition and necessitated our balance sheet restructuring. With our scaled leadership position, our uniquely differentiated premium audio content and a robust capital structure, we believe Audacy will emerge well positioned to continue its innovation and growth in the dynamic audio business.”

As part of the deal, Audacy and its lenders will equitize approximately $1.6 billion of funded debt, a reduction of 80% from approximately $1.9 billion to approximately $350 million. The company has filed a reorganization plan that must be approved by a judge — and it expects to emerge from bankruptcy sometime in the coming months once regulatory approval is obtained from the Federal Communications Commission.

The company announced the filing after giving out millions in bonuses in late June to 'ensure we keep the right team in place and stay focused on continuing to position the company for long-term growth.'

The bonuses included Chairman/President/CEO David Field getting $1million, EVP/Strategic Initiatives and CFO Richard Schmaeling getting $850,000 and EVP/General Counsel and Secretary Andrew Sutor IV receiving $600,000.

The first court hearing is scheduled for Monday in Texas. Audacy said it has filed a series of motions to obtain court authority to continue operating its business in the ordinary course without disruption to its advertisers, vendors, partners or employees. The company expects to operate normally during the restructuring process under its current leadership team.

Audacy said its existing lenders have agreed to provide $57 million in debtor-in-possession financing, comprising a $32 million new term loan and a $25 million upsize of the company’s existing accounts receivable financing facility from $75 million to $100 million, during the Chapter 11 process.

Subject to the court’s approval, Audacy said the financing and the company’s cash from operations and available reserves is expected to enable it to fulfill commitments to employees, advertisers, partners and vendors.

Audacy said its common stock will continue to trade over-the-counter under the symbol “AUDA” during the Chapter 11 process. The shares are expected to be canceled and receive no distribution as part of Audacy’s restructuring.

Lenders will receive equity in the reorganized company, according to Audacy. A Wall Street Journal report last week indicated that lenders will own a majority of the company. That would mean the Field family, which founded the company as Entercom Communications Corp. in 1968 and held more than a third of its shareholder voting power as of March 2022, would no longer have control of the company’s decision-making.

The new owners could choose to keep the current board and management or replace them. Existing shareholders, including long-term investors who have seen the company’s stock price decline from $17 a share to 20 cents since the CBS deal was announced, would be eliminated without receiving anything in return.

Analyst Craig Huber of Huber Research Partners said in an interview last week that the “death knell” for Audacy was the CBS acquisition, when it took on the latter’s $1.4 billion in debt. He said in recent years, the company focused on growing its digital capabilities with some significant investments that sidetracked it from efforts to reduce its debt load and the need to cut costs.

“They were oblivious to paying down their debt,” Huber said. “They took on a lot of debt with CBS and have done a poor job paring down that debt ever since.”

The CBS acquisition made Audacy the second-largest radio station owner in the country, and the company moved its corporate offices and six local stations into a new headquarters at 2400 Market St. in Philadelphia. The company quickly made significant investments in podcasting and related technology before the pandemic dealt a significant blow to advertising revenue.

Audacy's stock was delisted last year after its share price fell below the $1 listing requirement from the New York Stock Exchange. It tried to regain compliance with NYSE requirements by implementing a 1-for-30 reverse stock split of the company’s Class A and Class B common stock, but the effect was short lived. In addition to the plummeting stock price, the company's market capitalization has fallen from $2.3 billion to $885,000 since the CBS Radio deal was announced.

A bankruptcy filing has been expected, as Audacy spent the second half of 2023 negotiating with its creditors to refinance $1.9 billion in debt. It skipped a debt payment in late September and sought and received several extensions, the latest delaying the repayment of $18.9 million in debt from December into early 2024.

Huber was critical of Audacy’s management team for not being as aggressive with cost cutting in recent years. During the first quarter 2023 earnings call, Huber asked Field and Audacy Chief Financial Officer Richard Schmaeling why the company was only targeting a 4% reduction in costs for the year rather than 10%. Huber said last week that the company’s new owners will need to step up cost-cutting measures.

“They will need to look in every nook and cranny,” Huber said.

Huber said there are no easy fixes to get Audacy back on a profitable path, referencing a “slippery slope” of declining advertising and listenership. He said that makes it a tough market to sell some of the company’s 220 radio station for attractive prices. Some likely avenues for cost-cutting would be job reductions and renegotiated leases for real estate.

“You just hope there is no recession, though the ecosystem is what it is right now,” Huber said.

For its part, Audacy said the restructuring will enable the company to continue its digital transformation and “capitalize on its position as a scaled, leading multi-platform audio content and entertainment company differentiated by its exclusive, premium audio content.”