CASE PROFILE: Cumulus Media RSA hands 83.5% of equity to TL holders

30 November 2017

Radio broadcasting company Cumulus Media filed for Chapter 11 protection last night (29 November) with a restructuring support agreement (RSA) in hand. The RSA would give 83.5% of the company’s reorganized equity to its holders of its term loan, and the proposal is backed by holders of about 69% of those lenders. Holders of a USD 610m 7.75% senior note due 2019 would get 16.5% of the new stock.

 

Along with the consenting term loan lenders, shareholder Crestview Radio Investors also supports the RSA. Cumulus is not currently seeking approval to use debtor-in-possession (DIP) financing, but is asking the court to authorize the use of cash collateral. A first-day hearing is scheduled for Friday (1 December) at 12:30pm ET in the US Bankruptcy Court for the Southern District of New York.

 

 

CLICK HERE to view all Cumulus Media Chapter 11 filings on Debtwire Dockets.

 

The company

 

Cumulus radio broadcasting reaches 245m people every week through radio stations it owns and operates, according to a first-day declaration from John Abbot, the company’s CFO and executive vice president.

 

 

The company divides its operations into two segments. The radio station segment owns and operates 446 radio stations across the country. Cumulus’s Westwood One brand runs its radio network segment, which syndicates content and services to about 8,000 other radio station affiliates.

 

The company-owned radio stations serve 90 different markets located across 36 states and Washington, DC, Abbot said. In addition, Westwood One is one of the largest radio networks in the country by number of station affiliates. It produces, syndicates and distributes owned-content and services, as well as content and services produced by partnering with third parties. Westwood One sells its content to station affiliates in exchange for commercial air time, which it in turn sells to national advertisers.

 

Abbot said Cumulus and other radio broadcasting companies derive their primary revenue by selling advertising time to local, regional and national spot advertisers. Radio networks like the Westwood One division derive revenue from the sale of advertising time primarily to national network advertisers. Given audience variety and low advertising rates compared to other media, Abbot said radio is considered a cost-effective, efficient means of reaching specifically identified demographic groups – especially since many radio stations are classified into specific genres like country, rock, oldies, or news and talk.

 

Cumulus does generate revenue from non-broadcast sources as well, Abbot said. The other revenue outlets include events and digital sources – such as advertising from Cumulus’s digital streaming programing, website ads, podcast ads, and the sale of third-party digital products and services.

 

As of 31 December 2016, Cumulus employed about 5,479 people, with 250 of those being covered under collective bargaining agreements. In 2016, Cumulus generated operating revenues of USD 1.1bn.

 

The debt

 

On 23 December 2013, Cumulus entered into an amended credit agreement with lenders and agents for an initial USD 2bn term loan, maturing in December 2020, and a revolving facility maturing in December 2018, under which USD 200m was available to borrow. USD 1.7bn is outstanding as of the petition date on the term loan, according to the first-day declaration. There are no amounts due under the revolving facility.

 

 

The company issued its 7.75% senior notes due 2019 on 13 May 2011. Abbot said the proceeds were used to repay USD 575.8m under a term loan from a prior credit agreement. On 16 September 2011, Cumulus entered into an indenture governing the notes. The noteholders have a USD 637.3m listed unsecured claim.

 

 

Cumulus also previously had an accounts receivable securitization facility with Wells Fargo Capital Finance, but at the end of 2015 and 2016 there were no amounts outstanding. The facility was terminated on 28 November of this year.

 

As of 13 November, there were 1,027 holders of Cumulus’s Class A common stock and one holder of its Class C common stock. No Class B stock was issued or is outstanding.

 

The descent

 

Between 1998 and 2013, Cumulus completed about USD 5bn worth of acquisitions to grow both its radio network and radio station businesses. Its largest acquisition was Citadel Broadcasting in 2011.

 

Cumulus struggled to develop the necessary management and technology infrastructure to integrate the assets and support and manage an expanding portfolio, Abbot said. Certain acquisition projections ended up being “erroneous,” he added. Additionally, Abbot noted that management decisions failed to achieve desired results, so the company didn’t reach cash flow projections it had made to support paying for the acquisitions, particularly Citadel and then Dial Global – now known as the Westwood One business – in 2013.

 

Abbot said underperformance resulted in leverage levels significantly in excess of original projections. This issue caused the company’s performance to falter so much that from 2012 on, it faced declining year-over-year ratings, revenue, and EBITDA, according to court documents.

 

In addition to Cumulus’s historical underperformance, advertiser and listener demand for radio overall has been negatively impacted by content and advertising opportunities in growing digital streaming and web-based digital formats, Abbot said. The shift has resulted in declines in radio industry revenue and listenership, he added.

 

As a result of industry pressures, coupled with the high acquisition prices and resulting poor performance, Cumulus found itself with an excess of debt relative to its earnings and “rapidly” faced approaching maturities on funded debt, Abbot said.

 

Restructuring talks

 

In 2015, Cumulus began to consider balance sheet restructuring options to address maturities under its credit agreement and indenture, according to court documents. On 7 December 2016, the company announced it had entered into a refinancing support agreement with holders of about 57.3% of its outstanding senior notes in contemplation of a private exchange offer. The offer would refinance the notes, reduce outstanding principal on funded debt, and address upcoming maturities, court papers showed.

 

Cumulus launched the offer on 12 December 2016. At the same time, the company filed a complaint in the US District Court for the Southern District of New York against the administrative agent under its existing credit agreement seeking a declaratory judgment that the company was authorized to proceed with its refinancing. Cumulus also asked the court to require the agent to comply with contractual obligations to consent. On 24 February of this year, the court denied the motion for summary judgment. Subsequently, Cumulus terminated its private exchange and refinancing support agreement on 10 March.

 

Cumulus then began negotiations for a potential restructuring with advisors to ad hoc groups of its term loan lenders and holders of the senior notes. The lenders on the term loan ad hoc committee are: Eaton Vance Management; Franklin Mutual Advisers; Highland Capital Management; JP Morgan Chase Bank; Silver Point Finance; Voya Investment Management; Beach Point Capital Management; Symphony Asset Management; and Nuveen Fund Advisors.

 

The noteholder ad hoc group includes Angelo, Gordon & Co.; Brigade Capital Management; Capital Research and Management; Greywolf Capital Management; and Waddell & Reed Investment Management.

 

In September of this year, Cumulus executed non-disclosure agreements with members of the groups to further negotiations. On September 26, along with restructuring advisors, it held separate meetings with the noteholders and the term loan lenders. At the meetings, Cumulus presented the framework for a restructuring proposal. Each ad hoc group presented the company with their own initial restructuring proposal during the first week of October.

 

Abbot said Cumulus continued to negotiate terms with each of its creditor constituencies during October to reach a deal. By the end of the month, the company’s negotiations with the ad hoc noteholder group had produced a “general alignment” on terms for an out-of-court restructuring and if that failed, a potential in-court restructuring, Abbot said. The proposed terms included reinstating the term loan and equitizing the senior notes. At the same time, Cumulus was also making progress in its negotiations with the ad hoc lender group.

 

On 30 October, the board of directors authorized Cumulus to forego a USD 23.6m interest payment on its senior notes due 1 November and enter a 30-day grace period.

 

The RSA and Chapter 11 case

 

On 29 November, Cumulus entered into its RSA backed by consenting term loan lenders holding about 69% of the loans and filed for bankruptcy on the same day. Under the proposed treatment, the term loan lenders would get a USD 1.3bn first lien term loan and 83.5% of the company’s reorganized equity.

 

 

The senior noteholders, along with other general unsecured creditors, would get a pro rata share of 16.5% of new common stock, subject to dilution from a post-emergence management incentive program. Current equity holders would be wiped out.

 

 

 

The RSA requires Cumulus to complete its restructuring within 180 days. The company has to file a plan and disclosure statement by 8 December. Cumulus has to get disclosure statement approval by at least 28 February 2018 and plan confirmation by 27 April 2018. Plan emergence must occur by 29 May under the RSA.

 

 

At the company’s hearing on Friday, it will seek approval of first-day motions, including authority to use its cash collateral. Cumulus’s other proposed motions seek approval to pay employees, honor prepetition obligations to on-air radio talent, and pay utilities, among other things.

 

 

The advisors

 

 

CLICK HERE to view the Chapter 11 petition.
CLICK HERE to view the RSA.
CLICK HERE to view the first-day  declaration.
CLICK HERE to view the cash collateral motion. 
CLICK HERE to view All Intellignce for Cumulus Media.