iHeartMedia is buried under a mountain of debt that totaled $20.9 billion at the end of last year. This week, two events occurred that will help shape the future of the country’s leading radio broadcaster: a director resigned, a new director was appointed, and it got more time to hold off upset lenders.
Before continuing, a quick layout of the company may be helpful. iHeartMedia, Inc. (that Inc. is important…) is the parent of three companies: iHeartMedia Capital I, LLC, iHeartMedia, and Clear Channel Outdoor Holdings, Inc, an outdoor advertising company. iHeartCommunications is a subsidiary of iHeartMedia Capital I, LLC. iHeartRadio, the terrestrial and online broadcaster, is a subsidiary of iHeartMedia (no Inc.). Clear Channel Outdoor itself has two child companies: Americas Outdoor and International Outdoor. And the entire company is owned by two private equity firms, Thomas H. Lee Partners and Bain Capital Partners, which bought iHeartMedia Inc. (then named Clear Channel Communications) in a leveraged buyout valued at $24 billion in 2008, when leveraged buyouts peaked (just ahead of the recession).
Most of the debt in question — again, $20.9 billion at the end of 2015 — is shouldered by iHeartCommunications. Interest on the debt is a drag on earnings; in spite of generating $6.5 billion in revenues in 2015, iHeart paid $1.8 billion in interest expense and ended with a total net loss of $651 million. Numerous reports explain how iHeart has restructured and refinanced debt in order to move back maturity dates. In the next three years, almost $1.4 billion of debt will mature, according to iHeart’s latest investor presentation.
One of the company’s directors, Julia B. Donnelly, has left from the board of iHeartCommunications and will be replaced by a director of a part owner, according to an SEC filling. A company spokesperson said her resignation had nothing to do with the current debt issues. Donnelly was replaced by Laura A. Grattan, a director at Thomas H. Lee. Grattan was also named to the board of managers of iHeartMedia Capital I, LLC, the direct parent of iHeartCommunications, as well as the board of directors of iHeartMedia, Inc., the indirect parent of iHeartCommunications.
More important is the legal fight that arose after iHeart transferred over $500 million in assets from Clear Channel Outdoor Holdings to another subsidiary, Broader Media, LLC. The move was seen as a way to retire some debt and help sell additional debt. The lenders quickly issued iHeart a notice of default, claiming the transfer was not permitted under the terms of the debt agreements. In anticipation of default notice, iHeart filed a lawsuit asking the judge whether or not the transfer was permitted, a move that has bought iHeart time to find a solution.
iHeart said in a statement it believes the transfer is compliant with the financing agreements. It went on to state its operating business allows for “the flexibility to manage our capital structure in a prudent manner” as the company continues to evaluate ways to improve its balance sheet.
The case is moving forward. The parties mutually agreed to a temporary restraining order until they can get to a trial on the merits of case. In return for the negotiated agreement, the lenders and iHeart are on the docket to start the trial on May 16 in San Antonio.