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Cumulus to buy WLUP and WKQX Chicago outright

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Cumulus to buy WLUP and WKQX Chicago outright

Post by 1027BrianFM » Wed Oct 25, 2017 1:30 am

https://radioinsight.com/headlines/1205 ... -purchase/

Merlin Media is officially no more, which was disaster from the word GO. With Cumulus on shaky ground financially, it makes me wonder how wise of an idea this was.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Sat Oct 28, 2017 10:27 am

Cumulus had no choice.

The contract had a "put" provision (probably enforceable as of the third anniversary date of the LMA) whereby Merlin could force Cumulus to purchase the stations outright.

Had Cumulus refused, control of the stations would've reverted to Merlin and Cumulus would've completely lost out on the cash flow from WLUP and WKQX.

All Cumulus had to do was write a check for $50 million. Not a bad price for two FM stations in market #3. Bear in mind Cumulus has already paid $20 million LMA fees.

The fair market value of these two stations is greater than $50 million. Power 106 in Los Angeles sold earlier this year for $82 million, I believe. Q101 and The Loop on a combined basis probably generate about the same recurring cash flow as Power 106.

So, while this forced purchase was punitive to Cumulus' liquidity, it will likely prove to be net worth accretive.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Sat Oct 28, 2017 10:41 am

By the way, I'm pretty sure interest payments come due on at least some of Cumulus' senior notes in December. Will be interesting to see if they make the payment on time or not.

If Cumulus chooses not to make the payment, they will file an 8-K with the SEC. Usually, when such payments are not made by the stipulated due date, the bond trustee is required (based on the contractual terms of the notes) to grant a 30 or 45-day payment grace period.

If a forbearance or consensual debt restructure isn't agreed upon / executed by the end of that grace period, Cumulus will have no choice but to file Bankruptcy.

I'm going to pull up Cumulus' recent SEC filings to see if I can get a better sense of the situation.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Sat Oct 28, 2017 11:21 am

The most recent 10-Q is from June 30; I suspect the September 30 form 10-Q won't be filed until mid-November.

Through the first half of the year, Cumulus was net cash flow positive. Unrestricted Cash on hand equaled about $141 million, up roughly $10 million from FYE 2016.

They have $50 million in availability under an A/R Securitization facility from Wells Fargo; that facility had a $0 outstanding balance at June 30.

Between November & December, only about $45 million in debt service comes due, based on my rough back-of-envelope math. Most of that is interest expense. They have plenty of liquid resources available to cover those payments, if they so choose. Again, so far this year, they've been able to use cash flow from operations to cover every dime of debt service without having to dip into cash reserves.

I think the only way Cumulus defaults on any of its upcoming Q4 debt payments is if they have a pre-packaged bankruptcy ready to go. My guess is that's unlikely.

So, look for Cumulus to continue to chug along as-is for the foreseeable future.

Things will become more interesting next year, particularly by autumn of next year. $2.4 billion in long-term debt is scheduled to balloon in May 2019 and the company's $200.0 million Revolving Credit Facility ($0 currently outstanding) matures at the end of 2018. The Revolver going away is probably a foregone conclusion. The key will be striking a deal with the long-term debt holders.

BTW, they *still* haven't closed on the sale of the WMAL tower site land in suburban Washington, D.C. That transaction has been pending for about two years now. That sale was supposed to raise $75 million in cash. Executive management used to discuss the deal in every quarterly investors presentation. Now, the only place it's mentioned is in the notes to the quarterly & annual financial statements. Would not surprise me if it never closes.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by Radio Sucks » Sun Oct 29, 2017 8:05 am

But MW, what does this tell you about the future of Cumulus?

New Cumulus Board Member is a Corporate Restructuring Lawyer
AllAccess.com wrote:BAKER's expertise is in guiding clients through out-of-court restructurings and court-supervised reorganizations and restructurings.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Sun Oct 29, 2017 9:23 am

It tells me that they are gearing up for difficult discussions with their lenders.

Payment default isn't the only consideration in play. A non-payment default under Credit Agreement terms may also be looming.

Specifically, if Cumulus' CPA firm is unwilling to issue a clean audit opinion for the fiscal year ending 12-31-2017, that occurrence in & of itself will almost certainly qualify as an Event of Default.

If Lenders have indicated they intend to enforce remedies under their Credit Agreement should such an occurrence unfold, then that, too, could force Cumulus' hand into filing for bankruptcy.

So, I need to amend the timeline in my prior post. It is certainly possible that we could see a Cumulus bankruptcy filing by late Q1 or early Q2 of 2018.

Mr. Baker is certainly qualified to guide the company through bankruptcy and review the recommendations of any professional firms that Cumulus engages in connection with any in-court or out-of-court restructuring process. Latham & Watkins, Skadden and Weil all have robust expertise in such matters. This gentleman was a big shot at Latham, a globally renowned law firm with respect to corporate matters.

I wonder if he previously worked with Berner when she led Reader's Digest through bankruptcy?
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by Radio Sucks » Sun Oct 29, 2017 9:34 am

It is important to remember that Crestview/Jeff Marcus is in up to their wallets in equity, not debt. I would think that any sort of pre pack would help restore some of Crestview's investments, but I don't know how that works.

Slightly off topic question for someone who knows a lot more about this than me - Why the complicated Russian-doll style ownership structure of Cumulus? Is that done on purpose?

The Ownership Structure of Cumulus Media (not sure if this link will work)

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Sun Oct 29, 2017 2:40 pm

This could go any number of directions.

The question at the end of the day is this - what will make the majority of the existing lenders happy? To help answer that question, we need to know who holds the debt. I don't have a clue. It could be mostly traditional lenders, private equity (e.g. Crestview, Bain, Oaktree) or distressed equity (i.e. vulture capital) firms. Or it could be a mixed bag.

I would be surprised to see a fire sale of the company or widespread liquidation of assets.

What we might see is a divestiture or spin-off of Westwood One, placement of unprofitable / marginally profitable / functionally obsolete radio stations in a liquidating trust, renegotiation of some contracts, and new credit facilities (one for Westwood One, another for "new Cumulus") that will serve as exit financing.

Did you read about the proposed "Main Studio Rule" rescission at the FCC? This is not a mere coincidence of timing. I suspect big corporate radio has been lobbying hard for this rule change in recent months. If it becomes law - and I fully anticipate it will - this could benefit iFart and Cumulus tremendously, but especially in the context of any in-court BK proceeding.

That rule change - combined with chapter 11 proceedings - would provide iFart and Cumulus the ability to terminate existing real estate leases, sell unnecessary owner occupied real estate, consolidate most operations into regional hubs (i.e. Chicago or Detroit), further reduce staffing, and maybe keep one or at most two live studios in operation in places such as Grand Rapids (and probably zero in places such as Muskegon).

Getting back to the exit credit facility concept - the feasibility all gets back to who holds the incumbent debt. If it's largely traditional lenders/banks, they'll push back. They will first want to see offers from potential third party buyers in the open market. If those offers stink, then they may settle for rolling their pre-petition debt into the exit facilities, taking a haircut in the process, and receiving a sizable equity stake in exchange for accepting the haircut.

Restructuring plans - especially those that have the benefit of restructuring support agreements from a majority of lenders in advance of a confirmation vote - sometimes contain poison pills that punish non-consenting lenders (for example, deep subordination, forced maturity date extensions, non-participation in credit enhancements granted to consenting lenders). This type of scenario is most likely to play out if equity firms, including any vulture capitalist-type firms, hold the lion's share of the debt.

I would be curious to know at what type of discount Cumulus' term debt and senior notes are currently trading. In the days ahead, I'll see if I can't scoop up that info.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by Radio Sucks » Mon Oct 30, 2017 10:37 am

To be on the opposite side of some of your arguments - Most of the revenue from places like Muskegon and Youngstown is LOCAL revenue - generated by local salespeople on the ground in those markets. To maintain any sort of revenue from those markets will require local managers, local salespeople and LOCAL production people to produce the local spots. Not sure how you eliminate any of these, so if you have to spend the money on all of this, why get rid of all the local studios?

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Mon Oct 30, 2017 7:19 pm

The salespeople can work from home or a small non-descript office in a professional bldg somewhere.

Production work can be done anywhere.

You don't need a local manager. That can come from GR, for example.

A bunch of antiquated, crappy AM stations (or the underlying real estate) will likely be sold as part of any restructuring. That stuff is a drag on the balance sheet. Those assets should be monetized now, for a number of reasons.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by Radio Sucks » Tue Oct 31, 2017 6:26 am

Someone with knowledge of banking but maybe not radio wrote:The salespeople can work from home or a small non-descript office in a professional bldg somewhere.

Production work can be done anywhere.

You don't need a local manager. That can come from GR, for example.
All those things could and might happen.

Cumulus could easily run all of their Illinois stations out of Chicago. iHeart could move all those small market stations in Ohio to one of their five big hubs (Cincy, Dayton, Columbus, Toledo, Cleveland) closing down 10 other facilities. But who does the Saturday morning car dealer remote in Defiance or Peoria? Do they just throw that money away?

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by Radio Sucks » Tue Oct 31, 2017 6:29 am

He also wrote:A bunch of antiquated, crappy AM stations (or the underlying real estate) will likely be sold as part of any restructuring. That stuff is a drag on the balance sheet. Those assets should be monetized now, for a number of reasons.
Don't you need a buyer of some sort to make this work? Is the "underlying real estate" worth enough, because the stations aren't!

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Tue Oct 31, 2017 8:04 pm

But who does the Saturday morning car dealer remote in Defiance or Peoria? Do they just throw that money away?
In some cases - sadly - "throwing that money away" will be the path likely chosen.

I really hope a genuine effort is made to sell some of the clusters in non-PPM markets, especially the sub-100 markets. Would be great to see more of those stations fall into the hands of local & regional operators, not some national monolith.
Don't you need a buyer of some sort to make this work? Is the "underlying real estate" worth enough, because the stations aren't!
Depends on the situation. In a few cases, shutting down the station - even absent a buyer - may be more financially attractive than continued operation. We've seen examples of this recently with Cumulus-owned properties.

There is nothing, really, that would prevent Cumulus from following a dual path approach to marketing such properties. Field offers from radio station operators. Field offers from land developers. Take whichever offer is economically highest & best.

It's easier to entice the Lenders to forgive/write-off some of their debt if you can (a) simultaneously pay down some debt with cash, (b) provide a realistic road map for future cash payments via asset liquidation proceeds, and/or (c) grant equity rights so as to provide a glimmer of hope of future upside.

Any restructuring plan will consider projected EBITDA or Broadcast Cash Flow run rates and will likely look to "size" post-emergence debt amounts based on a market accepted cash flow leverage multiple - say 4.5x or 5.0x EBITDA (along with assurance that the ratio will hold stable or reduce over time).
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Thu Nov 02, 2017 8:06 pm

I'll be damned. They chose not to make the semi annual interest payment on their 7.75 percent senior notes. Now, the 30-day grace period starts.

Something's brewing, but I cannot make sense of it.

Cumulus has no revolver balance outstanding and still has plenty of cash at its disposal. Sometimes, companies like to file when they still have decent levels of cash on hand. It gives them added flexibility.
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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Re: Cumulus to buy WLUP and WKQX Chicago outright

Post by MWmetalhead » Tue Nov 14, 2017 6:45 pm

Man oh man, did these guys burn through their cash in third quarter!!! Cash went from $141 million on June 30 all the way down to $69 million as of September 30. (The 10-Q report for September 30 was posted on November 9.)

Something really sucked up a LOT of cash during the summer months. That's before even taking the recent Merlin transaction into account. Now we know why the November 1 semi-annual bond interest payments were skipped.

Their very detailed debt restructuring proposal was sent to the SEC within the last 24 hours. The proposal provides for an out-of-court and in-court option.

My thoughts and a summary of terms can be found here:
viewtopic.php?f=10&t=46836
C'mon iHeartRadio - do the RIGHT thing for once! Please cancel "Rover's Morning Glory" from WBFX in Grand Rapids.

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