Monday, April 6, 2009

Radio industry to restructure

It is going to happen.

Private and public radio companies alike are going to have to restructure their balance sheets. There is no way that the current anemic revenue growth will allow most radio companies to meet their debt covenants in 2009. That, coupled with the difficulty of shedding assets at a multiple higher than their leverage multiple, paints a dire picture for 2009.

On the plus side (for the broadcasters at least), most lenders recognize the fact that fire-selling assets in the current environment makes no sense. It will make their bad situations worse. That leaves them with two options: 1) either negotiate a workout with the existing stakeholders and management, or 2) foreclose, appoint a receiver, and try to hold on until times improve. In the majority of cases, existing management is the best management, so it is time to hit the negotiating tables.

Cumulus Media Partners has already been to the table. They recently proposed to swap senior subordinated debt for a combined debt/equity package. I do not think that the noteholders have many options and predict that the deal will be successful. If it fails, there will probably be a trip to the bankruptcy court. And I predict that this deal is only one of many to come. Note: the outcome of this deal should become public soon, but thus far I have not seen an announcement.