The legendary conservative talk show host Rush Limbaugh is often credited with single-handedly saving AM talk radio with his unique ability to analyze the political scene and satisfy his audience. But who will save radio itself after an orgy of consolidation, restructuring, and refinancing? Expensive talent, the revenue generators in sales, management, and the people in engineering who keep the stations on the air are all at risk. Some believed technology was the solution, automating everything from commercial injection, playing of records, and centralizing traffic and weather reporting. Some believed that syndication was the answer and attempted to cobble together massive audiences which could be effectively merchandised to national, regional, and local advertisers. Few anticipated the impact of the internet where streaming music is constantly available – much of it individually selectable into your own pseudo-station and commercial free. Few anticipated a drop in the drive time audience as people moved closer to work and traded longer commutes for convenience. And certainly, the financial engineers in Wall Street did not expect the chickens to come home to roost when securitized debt began to mature, counting on a roll-over strategy to keep the Ponzi scheme afloat.
So what happens when you owe $20 BILLION in debt ...
iHeartMedia Liquidity and Financial Position
As of March 31, 2017, we had $365.0 million of cash on our balance sheet, including $200.6 million of cash held by our subsidiary, CCOH. As of March 31, 2017, we had borrowed $305.0 million and had $38.3 million of outstanding letters of credit under iHeartCommunications’ receivables-based credit facility. As of March 31, 2017, this facility had a borrowing base of $421.2 million, resulting in $77.9 million of excess availability. However, any incremental borrowing under iHeartCommunciations’ receivables-based credit facility may be further limited by the terms contained in iHeartCommunications’ material financing agreements.
For the year ended December 31, 2016, we adopted a new accounting standard that requires us to evaluate on a quarterly basis whether there is substantial doubt about our ability to continue as a going concern for a period of 12 months following the date our financial statements are issued. A substantial amount of our cash requirements are for debt service obligations. Although we have generated operating income, we incurred net losses and had negative cash flows from operations for the years ended December 31, 2016 and 2015, as well as for the quarter ended March 31, 2017.
Our current operating plan indicates we will continue to incur net losses and generate negative cash flows from operating activities given iHeartCommunications’ indebtedness and related interest expense. Based on the significance of the forecasted future negative cash flows, including the maturities of the $305.0 million receivables based credit facility and the $112.1 million 10% Senior Notes due January 15, 2018, and the uncertainty of the outcomes of the Exchange Offers and Term Loan Offers, management anticipates that our financial statements to be issued for the three months ended March 31, 2017 will include disclosure indicating there will be substantial doubt as to our ability to continue as a going concern for a period of 12 months following the date the first quarter 2017 financial statements are issued as a result of uncertainty around our ability to refinance or extend the maturity of our receivables based credit facility, to achieve our forecasted results, and to achieve sufficient cash interest savings from the pending Exchange Offers and Term Loan Offers. <Source>
and the number 2 radio powerhouse also in major trouble?
Cumulus Media Inc. recently started talks with two separate groups of creditors who own big chunks of the company’s $2.4 billion in debt, according to people familiar with the matter. The radio broadcaster faces key deadlines when most of its debt matures in early 2019. The talks could lead to a bankruptcy filing, according to people familiar with the matter. <Source>
Bankruptcy and Situational Awareness
The answer is simple. You seek the protection of bankruptcy to blow the creditors off, sell the valuable assets (including licenses) to another generation of investors and continue on turning electricity into money – but without the tremendous debt load. Already belts have been tightened, programs canceled, stations reconfigured, and people laid off. If you are one of the remaining executives or employees, you reduce your personal expenses and keep your eyes open for other opportunities.