iHeartMedia Issues ‘Going Concern’ Warning

The parent of iHeartRadio is in talks with lenders on a plan to relieve its $20 billion debt burden from a 2008 leveraged buyout.
Matthew HellerMay 4, 2017
iHeartMedia Issues ‘Going Concern’ Warning

The parent company of iHeartRadio has warned it may not be able to continue as a going concern as it continues to struggle with the $20 billion debt burden from a 2008 leveraged buyout.

Private-equity firms Bain Capital and Thomas H. Lee Partners were the lead investors in the $24 billion buyout of what was then known as Clear Channel Communications. According to the Boston Globe, iHeartMedia “now faces another in a series of showdowns over its debt” and if the many stakeholders can’t agree on a refinancing plan, bankruptcy looms.

“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,” the company said Thursday in a news release.

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For the first quarter, iHeartMedia said, revenue fell 2.4%, while operating income declined 72.9% to $306.7 million. “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,” the company reported.

At the end of March, iHeartMedia had $365 million in cash, debt of $20.37 billion and total assets of $12.27 billion. Like other traditional radio companies, it has been hurt by the shift to music-streaming sites such as Spotify and Pandora.

Some analysts believe the company could be split, with its radio and billboard operations being sold to different buyers. But according to sources cited by the Boston Globe, any exit plan, whether through a breakup or sale, can’t happen until the debt crunch is resolved.

“There’s going to be some kind of restructuring,” said Scott Van den Bosch, a senior credit officer at Moody’s Investors Service.

George W. Tetler III, a bankruptcy attorney at Bowditch & Dewey, said the iHeart situation is unusual, mostly because of the way the buyout financing was set up.

“There are innumerable layers of debt that have been part of this structure for quite a period of time,’’ he told the Globe, noting that iHeartMedia has also been playing some creditors against others as it tries to convert some portion of its debt into equity.