I enjoyed participating in this week’s
Radio Ink Forecast 2016 in New York. The event was well attended, and the panels
informative and engaging.
My panel was entitled
Prospects
for Radio as an Investment in 2016: Wall Street or Main Street? Moderated by Drew Marcus of Sugarloaf Rock
Capital, the speakers included Brian McNeill, Founder and Managing General
Partner of Alta Communications and Jerry Sargent, Middle Market Banking Head at
Citizens Bank. Drew provided the Wall Street perspective, I talked deal
making/station trading and values, Jerry talked about debt/banks, and Brian
brought a private equity point of view.
Not surprisingly, there was a lot of talk about Cumulus and
iHeart, specifically their balance sheet problems. My takeaway was that there
was still time for Cumulus to resolve their operational issues, and work their
way out of trouble. Not so much for
iHeart.
iHeart has a looming series of important bond payment due dates. So far, they have masterfully been able to
kick the can and refinance debt, albeit at much higher interest rates (with the
result of a steadily increasing cost-of-capital). But their bonds are now trading at a deep
discount; that does not demonstrate much confidence on the part of the bond
holders.
We talked about the impact on the industry if Cumulus and/or
iHeart went through restructuring. I
believe that we would suffer through a (hopefully short) period of nuclear
winter; station prices would suffer, and the lenders would likely pull back
from the business. But the thaw could
get interesting. If, for example, they
decided to become a more CBS-esque type of company, focusing on the top 25 or
even top 50 markets, the spinoffs into the hands of entrepreneurs more
comfortable (and perhaps more skilled) in operating in small and mid-sized
markets could result in a tremendous resurgence for the industry. I contend that good operators, with healthy
balance sheets, would line up to acquire the markets being spun off.
Brian indicated that there is not much love coming from the
private equity world, but that family offices, with their more “patient money”
approach, are an option. On the other
hand, Jerry is open for business on the debt side. Capital structures of at
least 40% equity and 60% debt seemed to be a
safe target.
Tomorrow, I will post some thoughts on station pricing which
I shared with the group.
