IHeartMedia Posts Deep Losses, Repeats Warning on Debt in Quarterly Earnings

As expected, iHeartMedia posted deep losses of $388.2 million on total sales of $1.34 billion for the quarter ended March 31, 2017. That compares with a loss of $88 million on revenues of $1.36 billion for the year-earlier quarter. While that shows revenue down 2.4 percent, the company actually posted an overall revenue increase of 1.6 percent, but that was before foreign exchange impact. Most of the company's foreign exchange issue concerns its Clear Channel Outdoor Holdings subsidiary.

The company's iHeartRadio division posted $205.7 million in operating income before deprecations, amortization and non-cash charges, on revenues of $757.2 million, for the fiscal first quarter ended March 31, 2017. That represents a 15.3 percent decrease on the $242.8 million in IOBDAN, but a 2.5 percent increase in reported revenue of $738.9 million.

But the big news about its debt restructuring is still up in the air. iHeart is offering a debt and equity swap to creditors holding some $14 billion in debt -- $6 billion in senior secured term loans and $8 billion in debentures, of its $20.4 billion in debt. The company and its equity owners Bain Capital and Thomas H. Lee Partners have offered 49 percent of its publicly-traded Clear Channel Outdoor Holdings, which currently has a market capitalization of about $1.8 billion, according to Yahoo Finance. In exchange for getting that equity, those creditors would receive new debt that would mature two years later but pay two percentage points in lower interest rates and forgive 10-25 percent of what is owed.

As expected, iHeart repeated its going concern issue noting that unless it does something to raise cash, or lower expenses, and/or complete its debt for debt and equity swap, "management has determined that there is substantial doubt as to our ability to continue as a going concern for a period of 12 months following May 4, 2017," according to the company 10-Q filing with the SEC.

So far, the debtors have rebuffed all offers, which have been extended four times with the latest due date now May 12. The creditors are probably holding out for a higher equity stake in CCOH, and probably a lower amount of debt forgiveness.

According to Debtwire head of research Tim Hynes, iHeart executives on a conference call with analysts wouldn’t comment at all on the debt for equity swap.

He said the big concern for himself and other analysts on the call was why first quarter expenses were higher than anticipated; which resulted in the lower-than-expected income results. But company executives wouldn't  give any plausible explanation for the higher expenses, Hynes said, which may lead to speculation that the company is front-loading expenses in an attempt to stampede the debt holders into taking the swap. 

While the $6 billion in loans are secured by company assets -- the $8 billion in debentures are subordinated -- most of the creditors have an incentive to make the debt swap because they probably bought the bonds and pieces of the syndicated loans at a discount, Hynes said.

If the creditors take the swap, they likely would receive new debt that is higher than what they paid for the debt they're holding; and there is a likelihood that the deleveraging would allow the new notes to trade up, delivering still more profit to creditors, he posited. 

The creditors are just waiting for a better deal from iHeart, he said. 

"It doesn’t behoove [the creditors] to force a Chapter 11," Hynes said.