Capital Markets

Citadel Buying Back Loans at Discount: Who’s Next?

The broadcasting concern is paying 80 cents on the dollar, an approach some think could spread.
Stephen TaubMarch 26, 2008

In what apparently is the first case of a company repurchasing its bank debt for less than face value, Citadel Broadcasting is buying back its Norwegian bank loans for 80 cents on the dollar, Bloomberg News reports. And some analysts are asking: Who’s next?

Earlier this month, the third-largest U.S. radio broadcaster said in a regulatory filing that it would buy $200 million of its bank debt at a discount over a 90-day period.

The price of Citadel’s high-yield loans had fallen to the low-to-mid-70s on the dollar before the offer, Bloomberg notes, citing Stephen Antczak, a high-yield strategist at UBS AG. Antczak told the wire service, “I would be surprised if other companies didn’t try to do this.”

Bloomberg noted that the transaction is unusual, pointing out that companies such as Citadel generally pay par for bank debt when there is a repurchase. In fact, that’s why investors like to invest in bank loans.

Standard & Poor’s noted in a report earlier this month that Citadel will be voluntarily making these payments with excess liquidity, and that lenders are not obligated to accept.. “In addition, we assume that specific lenders who choose to accept are most likely doing so for their own liquidity needs in the currently tight credit environment, as they could potentially have commitments to other, less liquid deals,” an analyst with the ratings service added.

Bloomberg said that Citadel’s investors offered to sell $113.3 million of loans.

The repurchase comes on the heels of Citadel’s settlement with a portion of its subordinated noteholders. Citadel plans to use a total of $200 million of cash on hand and free cash flow generated in 2008 to reduce its subordinated notes and bank debt, to approach a target debt level slightly more than $2 billion by year-end 2008, according to S&P.