iHeartMedia, largest US radio station owner, files for Chapter 11 bankruptcy

iHeartMedia Inc has filed for Chapter 11 bankruptcy after it reached an in-principle agreement with creditors to restructure its overwhelming debt and reduce its debt by $10 billion.

It is the biggest owner of radio stations in the US, and assets include a live concert company and a music streaming service.

This means that the two biggest radio station operators in the United States have gone into bankruptcy.

The second largest, Cumulus Media Inc., took that path three months ago.

iHeartMedia chairman and chief executive Bob Pittman said of his move, "The agreement ... is a significant accomplishment, as it allows us to definitively address the more than $20 billion in debt that has burdened our capital structure.

“Achieving a capital structure that finally matches our impressive operating business will further enhance iHeartMedia’s position as America’s No. 1 audio company...

“iHeartMedia has created a highly successful operating business, generating year-over-year revenue growth in each of the last 18 consecutive quarters.

“We have transformed a traditional broadcast radio company into a true 21st century multi-platform, data-driven, digitally-focused media and entertainment powerhouse with unparalleled reach, products and services now available on more than 200 platforms, and the iHeartRadio master brand that ties together our almost 850 radio stations, our digital platform, our live events, and our 129 million social followers.”

Its lucrative billboard subsidiary, Clear Channel Outdoor Holdings Inc, is not part of the Chapter 11 proceedings.

iHeartMedia said it would continue to operate during the bankruptcy process from cash in hand and cash made from its divisions.

This was just one of the few details released about the Chapter 11.

It is not known what role, if any, is played by Sirius XM owner Liberty Media’s earlier offer of $1.16 billion for its financing needs in exchange for a 40% equity stake in the restructured radio company.

Another recent proposal would have given holders of secured loans (owed nearly $13 billion) about $5.6 billion in new debt and 94% of equity in a reorganized iHeartMedia.

These creditors also would have received iHeartMedia's 89.5% stake in Clear Channel Outdoor Holdings.

A pre-packaged Chapter 11 proceeding is a cleaner and cheaper process, and allows the company keep trading and retain its value.

It bypasses the alternate scenario where different classes of creditors will battle to ensure that their class (usually the senior ones) will get the most amount of money.

This way, the bankruptcy will be shorter and smoother, which means less legal fees.

IHeartMedia began as Clear Channel, with investment banker L. Lowry Mays and a car dealer friend B. J. “Red” McCombs buying KEEZ-FM in San Antonio, Texas in 1972. The company is still headquartered there.

Neither Mays nor McCombs knew anything about radio.

But the company spread nationally, with a musically bland playlist, a focus on talk-back radio and offering news stories to advertisers.  

It was powerful and feared and expanded into billboard advertising, television stations, and concert production.

It sponsored pro-Iraq War rallies and blackballed the Dixie Chicks when they criticised President George Bush.

At its peak, Clear Channel owned 1200 stations and was in 247 of America’s 250 biggest markets.

It dominated the Top 40 format and 60% of rock radio listeners.

Its shares were generating an over 1300% return. Mays was a billionaire who had a local business school named after him after he donated $15 million to it

By 2006, while the company was still a strong revenue generator,  Mays had seen that the radio market was fragmenting, newer mediums were emerging, and he wanted to retire.

Along came Boston private equity firms s Bain Capital LLC and Thomas H. Lee Partners LP who offered $26.7 billion, one of the biggest buy-outs in history.

But the two companies, which control 68% of iHeartMedia, bought in just as the financial crisis was beginning and radio advertisers were turning to the internet to better target their customers.

The owners spent the last ten years trying to work out a solution to lessen the massive interest payments.

The debt also meant that the company could not upgrade its technology at a time when its rivals were, and its stations revenue growth was minimal.

With a $8 billion debt maturing in 2019, last year the company began warning creditors that it would not be able to meet its debt obligations in 2018 unless the debt was refinanced.

On February 1, it skipped a $106 million interest payment, which triggered its latest crisis.