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Cumulus debt restructuring proposal announced!

Topics of general interest that just don't fit anywhere else.
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MWmetalhead
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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Thu Jan 04, 2018 7:59 pm

The author's premise is *if* the restructuring plan as conceived by Cumulus is confirmed, and *if* Cumulus is successful achieving all financial aspects of its five-year forecast, based on market-accepted valuation principles, the 7.75% Senior Notes are worth a lot more than their current trading value.

They are currently trading at about 16 cents to par value (i.e. 16 cents on the dollar). The author stylizes this as "$16.00." OK, fine. To each their own. :hat

If the BK plan is confirmed, the 7.75% Senior Notes won't exist anymore. Instead, those note holders will receive an equity stake in the company.

If the company's equity is not publicly traded on a post-restructure basis, good luck trying to liquidate it at fair market value. This uncertainty poses a big risk to current investors, which is one reason (but not the only reason) the notes are so heavily discounted at present.

Are the operating margin assumptions in his analysis reasonable (which basically come straight from the company's presentation)? I'm not sure. I am not too fond of the fact he's using unlevered pre-tax free cash flow as a proxy for operating margin. Also, see that tiny footnote #4 that appears in dimmed grey text? 2018's numbers assume Toll Brothers *finally* close on their suburban DC land purchase from Cumulus. That f*cking thing has been tied up in a zoning quagmire for over a year and has already been under contract two+ years. I bet the damn thing never closes. So, instead of $266 million in unlevered pre-tax free cash flow in 2018, I think it's safe to say that number will be closer to $190 million.

I pretty much wasted keystrokes in typing the above paragraph, because my preference is to use Income Statement operating margin (after removal of non-cash & extraordinary) items, less normalized capital expenditures, instead of his use of unlevered pre-tax free cash flow.

Under my calculation, operating margin has steadily deteriorated from ~20% in fiscal 2014 to ~15% in fiscal 2016. I did not run the math for the first three quarters of 2017 - I'm too lazy right now to do so.

To suggest an 18.0% go forward Operating Margin should be considered the "Base Case" seems a stretch on the author's part, especially since (per Mary's own admission) deep expense cuts in the wrong area can prove injurious to revenue. The author says Mary will be able to cut & slash her way to margin enhancement, even despite overall negative headwinds for terrestrial radio as a whole. I believe that is a hazardous assumption on the author's part.

BTW - what if the recording industry demands - and federal regulators approve - a big hike in recording industry royalties? The author mentions that possibility NOWHERE in his analysis.

I would probably stick to the 15% operating margin column in his valuation matrix. Maybe Mary over time can get that figure up to 16% or 17% on a sustainable basis. I don't know.

Assuming the Cumulus Plan of Reorganization is adopted as presented (again...a big "IF"), depending on actual company performance, the value of equivalent equity note holders will receive will probably fall in the $0.10 to $0.30 range over the next two or three years.

Of the course the Plan of Reorganization that Cumulus backs has yet to be voted on (and probably won't be voted on for several more months), and who knows how everything will shake out at the end of the day.

Bottom line - I think the current pricing of $0.16 is reasonable. It seems to strike a proper balance between downside risk and upside potential. I'd be surprised if there are small strips of this paper trading. This is likely a play for hedge funds and well-heeled investors.

The author notes he holds a "long" position in the paper. This means when he initiated the investment, he did so with the belief it would grow in value with time. He might've written his column to whip up market excitement for the paper in hopes he could dump his for a tidy gain. Who knows.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Thu Jan 04, 2018 8:13 pm

My above post contains all the "trees."

Now here comes the "forest" : The fact the secondary market is trading the paper at $0.16 on the dollar (i.e. 16% of par value) suggests to me they feel the 16.5% equity stake offered per Cumulus' proposed Plan of Reorganization is not worth a whole helluva lot.

They evidently feel $0.16 is the sweet spot where the proper risk/reward balance is struck.

We also don't know how much debt has been traded at that $0.16 price. I don't know if it's ten parties selling a combined $300 million of paper, two parties selling a combined $30 million of paper, etc.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Fri Jan 05, 2018 2:00 pm

So I tried to read this, understanding very little til I got to the end and saw his statement about being “long” in that particular security. For me, that shoots down most of his credibility?



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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Jan 05, 2018 6:31 pm

Undoubtedly, a conflict of interest exists.

Bottom line - take everything the author wrote with a heaping spoonful of salt.

As you likely observed, the author spent plenty of time talking about the positive attributes of the commercial paper and not nearly as much time talking about the risks.

The premise of the author's article is that based on his analysis of Cumulus' projected future cash flows, he feels the commercial paper should be trading at 2x (or even 3x ?) its current value, based on his perception of the value of the shares in Cumulus that holders of the commercial paper will receive if Cumulus' plan of reorganization is confirmed.

I believe the valuation assumptions that the author of the Seeking Alpha article is using are too optimistic. He claims Cumulus' go-forward Operating Profit Margin projections are supported by trailing five-year results. I disagree with that claim, because when you look at the past five years, clearly margins have grown worse with time. Secondly, I disagree with his claim because I believe terrestrial radio as an advertising platform will continue to lose market share to digital.

His valuation analysis incorporates an expected $75 million of cash inflow from a land sale near Washington, D.C. that the company projects will close in 2018. I disagree with incorporation of that number, because Cumulus has been promising for close to two years now that the damn sale will close "anytime," yet absolutely no progress has transpired during that time! From what I understand, that land sale hasn't been able to close because Toll Brothers (the buyer of the land) has been unable to rezone it. That dispute likely isn't going to be resolved any time soon.

I believe $0.16 on the dollar is a fair trading price for the 7.75% $610 million senior unsecured notes; the author (who holds an unknown amount of those notes) is saying $0.16 is too cheap and that they should be trading at a smaller discount to par value.

I agree with the $0.16 pricing and disagree with the author's valuation.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.


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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Tue Jan 09, 2018 3:50 pm

Some further info:

http://www.insideradio.com/free/u-s-tru ... 9493c.html

(Ignore the last paragraph of the linked article; it is misleading.)


Here is a primer as to the purpose of the Disclosure Statement:

http://www.alllaw.com/articles/nolo/ban ... er-11.html


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Thu Jan 18, 2018 9:27 am

Two things this Thursday morning on the Cumulus going for broke front -

1) iHeart just filed a claim that Cumulus owes it money for “ratings bonuses” for syndicated shows from Premiere running on Cumulus stations. (See allaccess.com for more info, can’t post the link here for sone reason.)

2) According to a very credible source, the bankruptcy filing and upcoming exchange of debt for equity constitutes a “material change of ownership” per FCC rules. This means that in markets where Cumulus has been technically over the FM limits and grandfathered in will have to sell stations. The “Cumulus Bankruptcy Trust” will soon be established to place those stations in as they are prepared for sale. Rumor has it that local managers have been consulted as to which stations to sell.



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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Fri Jan 19, 2018 4:39 am

Friday comes with more Cumulus news, including the death of the Merlin deal in Chicago.

http://mailchi.mp/tomtaylornow/tom-tayl ... e45d006836



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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Jan 19, 2018 7:37 am

Excellent info; thank you!

If a new deal between Merlin & Cumulus isn't reached (such an outcome seems unlikely at this point), Cumulus should just sell its remaining two Chicago stations. Hubbard, Weigel and Sinclair are all parties that would be interested, I would think.

I think WLS-FM will be highly marketable; they may have difficulty finding a buyer for WLS-AM. A religious or ethnocentric broadcaster or perhaps Salem could wind up with WLS-AM.

Of course, if Cumulus were to put its two stations on the market, it would likely be competing against Merlin. I think Merlin & its financial backers want out. So, it's possible we'll see WLS-A, WLS-F, WKQX and WLUP all on the market at the same time.

Hubbard - which owns WDRV, WSHE-FM and WTMX - has room for two more FM stations. Seems to me they'd be the ideal suitor for the Merlin stations. They could flip WLUP away from Classic Rock and retain WKQX's alternative format.

Whenever distressed stations are up for sale, one always should include Educational Media Foundation and Salem Broadcasting in the mix.

Merlin previously did a deal with EMF in Philly, but in that case, Merlin only had one station to dispose. Might Merlin sell WKQX to EMF and WLUP to Hubbard? EMF already has its K-Love format on a decent Class A suburban signal (94.3 MHz), which can be heard across most of Chicago proper on a car radio, but I bet they'd love to get on a Class B stick from atop Willis Tower or the John Hancock Bldg.

Of course, there's always the possibility that Cumulus will look to broker a new, more affordable deal with Merlin. If KQX and LUP lost $5.1 million after LMA fees in 2017, that means they generated $1.9 million before LMA fees (I'm not sure if that's a broadcast cash flow or GAAP-basis income statement figure inclusive of non-cash expenses without digging into the filings).


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Jan 19, 2018 8:08 am



Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Jan 19, 2018 8:17 am

Obviously, my post of December 22 of 8:30p ET turned out to be incorrect.

The billing numbers of WLUP and WKQX must be truly lousy!!!

Never dawned on me that broadcast cash flow from two maximum Class B FM signals in market #3 would be insufficient to absorb ~$7 million in annual LMA fees. These two stations must only be billing about $5 million to $6 million annually ($10 mill to $12 mill combined).


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Fri Jan 19, 2018 9:15 am

More than just The Loop getting the Cumulus Chicago rubber key. White Sox and Bulls are getting kicked to the curb.

http://www.robertfeder.com/2018/01/19/r ... wkqx-loop/

And MW let’s remeber that with no real accounting standards in the radio industry who knows how much of the overall expense of running that cluster (including a humongous cap ex on new studios last year) were charged against the Merlin stations billing.



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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Sun Jan 21, 2018 11:13 am

Perhaps we need a new thread of Cumulus and Merlin (started one on Neighboring States..) because


Randy Says Give 'Em Back to Me if You Don't Want Them!



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Re: Cumulus debt restructuring proposal announced!

Post by Deleted User 10525 » Thu Jan 25, 2018 1:05 am

I figured I'd add this. Yeah.. it's one piddly little station but it just shows you how bad things are.

https://radioinsight.com/headlines/1226 ... tion-dark/



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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Thu Jan 25, 2018 6:41 pm

The former Univision exec who posts regularly to the RadioDiscussions forums confirmed that my billing estimate wasn't far off the mark. He said the two stations probably pulled in about $12 million in combined revenue in 2017 and that billings had fallen from the previous year.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by Deleted User 10525 » Sat Jan 27, 2018 7:29 pm

Interesting, So now what? After its all said and done, will The Cloud exit some smaller Markets OR will be dump out of larger markets?



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Re: Cumulus debt restructuring proposal announced!

Post by Radio Sucks » Tue Jan 30, 2018 10:16 am

Found two interesting things in the Merlin filing:

1) Merlin objects to being considered a "subordinate" claim and
2) They expect a new deal before Thursday.
From the latest filings on the Cumulus bankruptcy, attorneys for Merlin wrote:Merlin and the Debtors have worked toward a consensual
resolution of all business and legal issues arising between them. Merlin expects that the parties
will be in a position to present a proposed resolution to the Court by the time of the hearing that
deals comprehensively with the Merlin Agreements and all of Merlin’s claims in the Debtors’
Chapter 11 Cases. As of the time of this filing, negotiations remain ongoing.



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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Feb 02, 2018 3:29 pm

Merlin and Cumulus have agreed to a 3 month LMA. Further, Merlin has agreed to rescind the "put" exercise.

Merlin will use the period to attempt to sell the stations. It is unclear if Cumulus may be an interested party if the price is lowered.

Prediction: Hubbard buys one if not both stations. They just purchased a pair in St. Louis.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Fri Feb 02, 2018 5:35 pm

It's now obvious Merlin wants absolutely nothing to do with hands-on operation of either WLUP or WKQX at this point:

https://radioink.com/2018/02/01/cumulus ... tions-now/

The LMA fee has been knocked down to a measly $15,000 per month. I'm not sure if Merlin still has any debt obligations; that fee may be keyed to Merlin's interest expense, or alternatively, out-of-pocket costs Merlin will need to pay an investment bank to run a sale.

I'll see if I can find a copy of the full agreement.


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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Re: Cumulus debt restructuring proposal announced!

Post by MWmetalhead » Sat Feb 03, 2018 9:32 am

Here is the full LMA Amendment and court order. Enjoy!

http://document.epiq11.com/document/get ... &source=DM

Some more info:
--The $15,000 monthly LMA fee is not a flat fee; the $15,000 figure is actually a cap as to Reimbursement Obligations that Cumulus must pay Merlin. If Merlin's reimbursable out-of-pocket expenses are less than that amount, then Cumulus is only obligated to pay Merlin that lower amount.
--It is unclear what is included within the Reimbursement Obligations; the Annex II where such obligations are defined was not included in the document filed with the court.
--If either side defaults under the terms of the LMA, a 10-day cure period shall be afforded.
--Licensee (Merlin) can terminate the agreement with 10-days' advance written notice should it enter into an agreement to sell the stations
--If Merlin does sell the stations to another party (or decides to keep the stations for itself), Cumulus will have the final say as to which employees stay with Cumulus.
--If Merlin intends to sell or assign the stations to a third-party, then Merlin needs to provide 24 hours' advance notice to Cumulus prior to execution of such transaction. (Presumably, this effectively gives Cumulus a chance to make a counteroffer.)


Radio's downfall has been under-investing in its core competency and becoming distracted by delusions of grandeur by thinking development of a half-assed national digital strategy will somehow put it on par with the Facebooks and Googles of the world.

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