iHeart Media – “Hiding the Pickle?”

“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.