Potential Pitfalls Remain For Audacy New Ownership Group

While Audacy earned approval from a federal bankruptcy judge last month, its bid to emerge from Chapter 11 reorganization now faces its final, and perhaps its most perilous, challenge.

The Philadelphia-based audio content provider needs regulatory approval for its reorganization plan and has filed with the Federal Communications Commission to get the nod for its new ownership group headlined by a George Soros-led investment firm, as well as permission to exceed the current foreign ownership limits. The company must also complete any radio station divestitures deemed necessary for FCC compliance.

The Philly Business Journal reports there is no telling whether those issues could cause a delay in Audacy exiting from bankruptcy.

In the Feb. 20 confirmation order from U.S. Bankruptcy Court Judge Christopher Lopez in Houston that approved Audacy's reorganization plan, there is language that confirms the FCC still holds the power to approve a change of control.

The Audacy reorganization plan calls for canceling about $1.6 billion of the more than $1.9 billion in debt that the company owes, with debtholders taking a majority stake in the company. Stockholders will be wiped out and Audacy said “substantially all” of the newly issued securities will be held by new shareholders.

George Soros

In its FCC filing, Audacy said 100 million shares of the reorganized company will be issued, including 27 million non-voting shares. The two biggest owners will be Laurel Tree Opportunities Corp. and MBX Commercial Finance.

Laurel Tree is financed by the Fund for Policy Reform, which was founded by billionaire George Soros. It will hold 57 million total shares, including 41 million voting shares, giving it a 41% stake in the company. The Soros-led vehicle acquired roughly $415 million of Audacy’s debt last month.

MBX Commercial, led by Five Hour Energy founder Manoj Bhargava, who recently attempted a hostile takeover of radio station owner Cumulus Media, will own 9.5% of the shares.

The new board will have seven directors, with one spot reserved for the company’s CEO, currently David Field. Laurel Tree will select three of the directors. The filing says the Fund for Policy Reform will take the lead — describing it as an organization that “makes grants and conducts activities for purposes of promoting social welfare, the common good, and the general welfare of people in communities around the world.” Other owners of Audacy's first-lien debt will appoint two directors and second lien holders will appoint one.

David Field

Audacy is getting a good deal of its new investments from overseas. The filing does not identify those foreign investors but estimates the new shareholder group would exceed the 25% limit on foreign ownership set by the FCC. So Audacy is seeking a waiver to that rule. The company said it will set up the transaction so restructuring can be completed to maintain compliance with the foreign ownership limits in the short term, which would help avoid the need for other federal agencies to immediately review waiver requests for national security, law enforcement, foreign policy or trade policy concerns.

In the filing, Audacy said waiting for rulings from all of those federal agencies could take six months or more and would “significantly delay the emergence of Audacy from bankruptcy, which would impose substantial burdens on the company.”

In all, Audacy operates more than 200 radio stations across the country.

When and if the FCC signs off on the reorganization plan, Audacy will emerge with much less debt. But it will face pressure to reduce costs, which could include cutting personnel, real estate, radio stations and vendor contracts. It must also find an economic model that is profitable moving forward in a world that has shifted away from terrestrial radio and toward podcasting. Advertising has fallen off since the pandemic, though Audacy claimed last week that it is off to a solid start in 2024.

Another question is whether Field will continue as CEO. Investors have criticized his leadership since the 2017 acquisition of CBS Radio, saying he did not deal aggressively enough with debt reduction or cost cutting.