“Hiding the Pickle” is a little game I was accused of playing when doing budgets back in the old Clear Channel/Jacor days. When putting together the annual programming, promotional, news and sports budgets, I’d hide a few dollars in various lines to “pad” things (so to speak). I had little tricks like putting the cost of billboards in as “gross” instead of “net.” That provided a few more dollars to spend for staff t-shirts and stuff like that. Of course, that was back in the days when radio stations actually bought billboards because they believed in what they were selling – advertising. But, I digress.
I’m sure glad that tradition continues today.
We recently learned through Bloomberg Business News of a company called, Broader Media LLC, which is a subsidiary of iHeart Media. It appears to have been created to raise and funnel investment dollars back to the parent company so the parent can avoid being called a “deadbeat” because of their inability to payback the money it borrowed.
$20.6 billion is the reported debt iHeart Media owes. That’s a 20 and a 6 and a whole bunch of zeros. That’s more than the entire radio industry makes in a year – combined. Put another way, a billion is a thousand million, so figure it out.
I called upon my go to economic insider, Dr. Siegfried Pepper, to shine a light on if a pickle is being hidden and if he could sniff out where that tasty kosher dill is.
“Dr. Pepper,” I asked, “is iHeart Media creating another company and moving so called ‘good’ assets into its ownership to raise money by offering stocks, bonds or various other securities using the subsidiary company’s new assets as collateral?”
Dr. Pepper’s answer?
There’s not much in terms of actual details here (referring to the Bloomberg articles), but to me it seems like a good ole fashioned kick the can. They can’t pay back this debt and make money. Refinancing debt is common, which is what they’re doing. The difference is they are moving it from a parent to a subsidiary. It’s impossible to say how this will work out without details. The article also mentioned equity to buy back debt. This make sense since the debt is trading at 39 cents on the dollar. The question is whether someone would do that. When you get equity and the company goes under (which IHM could), you get wiped out. With debt, these investors will at least get some money back in bankruptcy court. How much depends on the collateral and where the debt ranks on the liquidation totem pole. It sounds like the new debt may actually have stronger claims (i.e. better collateral in the event of liquidation). And moving these assets to the subsidiary makes this possible. As they say in the long run, we’re all dead. Well, in the long run, IHM is bankrupt.
According to Dr. Pepper, it just depends when the white flags go up and someone yells, “No Mas.”
So here’s the plan.
- Plan A – Offer a bond (debt) or stock (equity) deal to raise some cash to pay off the debt it owes now. Yes this will be new debt, but it will be due years from now. This is the “kicking the can” the esteemed Dr. Pepper referenced.
- Plan B – Sell securities, meaning stocks, bonds or various other types of investments, in Broader Media LLC and use that money to buy back bonds (debt) on the open market from the greedy S.O.B.’s that shouldn’t have loaned the money in the first place. In recent days these bonds were trading at about 39 cents on the dollar. It’s basically, “Hey. You’re screwed. But, we have a ‘deal-deal’ for you. We pay you 39 cents on the dollar for that bond you have and at least you get some of your money back.”
Those were sure fun days before the Great Recession hit in 2008, huh? What could possibly go wrong?
It appears they’re munching on some tasty pickles at HQ in Midtown Manhattan. You’ve got to love it when a new plan comes together.
I thought it would be fun to see how social media was reacting to the latest Wall Street “Hide The Pickle” game to get the attention of the business media.
At this point, it’s a debt Ponzi. Nothing more. There are a lot of “dumb” institutional retirement fund managers chasing yield … but not as many as there once was. Sadly, the employees will be the only ones to lose, the geniuses who couldn’t get out of the deal they signed in 08 before the crash have used junk bonds secured by the company to cash themselves out.
Bain’s exposure has largely been shifted to the people who’ve bought the more recent junk bond issues – and what’s left of the company. They’ve sold alot of assets to pay down their original exposure, too. Bain didn’t want to close but really, due to ZIRP, they won’t really lose much, if anything – the Fed’s pumped the junk bond market while keeping even trash debt yield low – whereas they couldn’t have cashed out the penalty owed the mays boys if they’d walked away.
Reading that article sounds like some type of shell game. Transfer and hide the debt for another day to make your bottom line look good to potential investors.
I will take an AM/FM in a resort area off their hands to help pay down the debt.
Get ready to buy a gutted shell of a radio station. Get the mop out. You’ll be cleaning up one grand mess.
We talked about this day when that would happen 20 years ago already…to us it was self evident. I hope they choke on it.
I consider myself to be a compassionate human being. But, conjuring up any sympathy for a company that almost single-handedly ruined radio – a medium I have loved deeply and passionately for most of my life – is impossible. My heart bleeds for i-Heart about as much as it did for Enron. F*ck ’em!
Ever wonder how you screw up “free,” as in something with an infrastructure in place, that’s everywhere and magically comes through the air for “free?” Somehow they, and if you work or worked in the radio industry over the past few decades, we managed. But, that’s for another day.
I’ve been waiting for 15 years for the banks to stop eating this shit sandwich that Clear Channel keeps feeding them. So far, they’ve just been grinning and bearing it. However, when they get tired of it, I feel it will be Armageddon and there will be some really good deals on some really good signals.
Sell a couple hundred stations. That might be one way to recover some of that debt!
It’s difficult to do. First, loans for broadcast are tough to come by. More importantly, the going price for stations is 5-6 times cash flow. The consolidators need (I have been told) about 14 to 16 times to cover what they paid for the stations, tax implications, etc. That’s why they haven’t sold stations. Back into a corner so to speak.
You are dead right on what they would need to sell stations. I tried back in 09 to secure a cluster and the multiple made no sense to move forward. They wouldn’t budge. I walked
Well it’s 7 years later and those multiples hold true. Lots has changed since then. We need to join forces and be at the ready to buy up some of those properties when the time is right (as long as the real estate is included). “Verpar Communications” has a nice ring to it.
founfd a stand alone AM station with a translator in Gloversville NY that I visited last week. Could be a start, Darryl.
I used to listen to WLW all the time. McConnell’s 9-noon was the best. Willy is ok. You Mr. Parks, were great on Sat mornings. Ken Broo is the only sports guy that is listenable.
But I hardly ever listen anymore. WAY TOO MANY COMMERCIALS.
I’ve discovered downloadable podcasts and that’s what I listen to now …
WLW is dying …. the amount of commercials makes it unlistenable.
On Sat mornings, in a typical Gary-Jeff hour, say 7-8am, I bet it’s not much more than 30 minutes of talk.
Sick of hearing 30 minutes of car commercials.
Free radio is history ….
There isn’t really much left to sell the tower sites and properties that they sat on went to Vertical Bridge for $400 million, that paid interest on the debt for almost a year, now they’re paying a HUGE premium on rent. Before they had towers that made the company money, now they’ve traded that asset for a liability, this is just planning for a bankruptcy sometime this year.
The company has posted losses in the millions to billions YoY since 2007, the only reason they can make payroll is to borrow money from Outdoor, which they sold 7 “non strategic” markets in January.
I recon that TTWN will be sold sometime this year. The $110M they paid for it will surely make some money back but servicing the debt is costing over $350M per year. Once Outdoor is sold then you can basically start the 90 day clock to a chapter filing. This would allow them to break the Aloha trust and sell some of those dogs and every other dog cluster than hasn’t seen black ink in 8 years. They really won’t give a hoot what they sell them for either since it will be going to the A and B bond holders, I’m saying its going to shake out at around 19 cents on the dollar.
What Pittman wants is to keep as many of the top 25 markets he can along with the iHeart radio app, and Premiere, I really don’t think he cares about the rest. As long as he can keep his personal Jet paid for, leased back to the company, and attend the swanky events over in France, the Music Festival, etc he’s happy with that. I mean this is the guy who retro fitted the inside of his jet for $750K and got the company to pay for half of it, he hasn’t any interest in making anything successful but rather maintaining his posh life style.
All anyone has to do is read the SEC filings, its all there, you’ll find his golden parachute lined in titanium and padded with enough dollars to cushion even the worst fall or failure, thru his fault or no fault of his own. I have no idea how a board of directors could let someone steer this death star for 7 failing years into the abyss without raising so much as an eyebrow but I guess Bain and THL have made a huge chunk of money off interest alone and when it all implodes they’ll be able to write off whats left after arbitration, so they’re basically winners no matter how this shakes out.
The people that will suffer will be the skeleton crew that is left running the show and those that think buying stations for pennies on the dollar in arbitration are getting a deal better consider a few things. First, most stations are fed content, anything out of the top 25 is basically a sales force, there is no talent. Second since everything is “clustered” a new owner would have to go thru the hassle of “breaking it free” and finding new digs, that isn’t cheap or easy to do.
All one has to do is look at things Pittman has touched in the past to see where this is headed, AOL and Century 21 are good places to see what his handy work leaves behind, personally nothing I’d be proud of myself.
Darn! The “Hide the Pickle” headline had me expecting to find a retelling of the story of an old staff Christmas party where, after a “few” drinks, the PD of a smaller AM station (not WLW) quietly exited with his station promotions director in tow, to the backseat of her car where they sufficiently wore out the vehicle’s suspension and walked back into the party a sweaty, disheveled mess. Ba-chika-wah-wah!
Ahh yes. The legendary Christmas party where legends were made. 🙂