Cumulus Restructuring Expected to Reduce Debt by Over $1 Billion, Help Radio Industry
Cumulus Media’s restructuring will be a boon to the industry, and a similar restructuring of fellow radio behemoth iHeartMedia is expected soon, analysts, brokers and attorneys told us Thursday. Cumulus filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York Wednesday, as expected (see 1708090069). It was telegraphed when Cumulus missed a debt payment at the start of November (see 1711030002).
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The restructuring will make Cumulus “much more of a viable company,” said Noble Capital Markets analyst Michael Kupinski. The major radio station owners getting out from under their debt overhang is expected to make the entire industry more attractive to investors, said Justin Nielson, senior researcher for S&P Global Market Intelligence.
The deal with debtors is expected to reduce Cumulus’ debt by more than $1 billion, the company said in a release. Cumulus’ outstanding debt is over $1.7 billion, according to bankruptcy filings. “Cumulus expects all operations, programming and sales to continue as normal throughout this restructuring process,” the release said. “The Company has ample cash on hand, combined with funds generated from ongoing operations, to support the business during the financial restructuring process.”
Cumulus’ primary creditors are expected to become shareholders. They include US Bank and Nielsen Audio, according to filings. Some details could change based on what happens in court, but it's largely what the radio industry expected, said Patrick Communications broker Gregory Guy. It's possible some shareholders who feel disadvantaged could oppose the deal, analysts said. Cumulus’ holdings include 446 radio stations and radio programmer Westwood One.
All experts said the restructuring is positive for the industry. As a company in debt, Cumulus was making decisions designed to maximize cash flow rather than on long-term growth or what best served the industry, Kupinski said. The company charged lower rates for advertisements than competitors, and held on to assets that might have been spun off in a less-indebted company, analysts said. After the restructuring, Cumulus likely will behave as a more “normal trading partner,” Nielson said. Some assets are likely to be spun off, and deal opportunities could arise, analysts said.
Radio’s other large in-debt company, iHeartis seen as actively negotiating its own restructuring. Agreement is seen likely sooner rather than later. “These things have a long fuse," Guy said. Combined with Entercom's recent purchase of CBS Radio (see 1711090067), the restructuring of two of the biggest station owners in the industry is expected to put radio closer to showing positive growth, which is expected to be more of a draw to investors, Nielson said. iHeart didn't comment.
The FCC will have a role because the restructuring will involve changes in ownership of Cumulus’ licenses, a broadcast attorney pointed out. If the majority ownership changes, the broadcaster will need to make long form filings for its many stations, the attorney said. Those applications are considered likely to be approved, the attorney said.
Cumulus blamed bad management decisions, underperfoming acquisitions and online competition for its debt problems: “Advertiser and listener demand for radio overall has been negatively impacted by the availability of content and advertising opportunities in growing digital streaming and web-based digital formats, resulting in declines in radio industry revenue and listenership.” CEO Mary Berner said changes to the company have begun to turn it around but “the debt overhang left by previous years of underperformance remains a significant financial challenge that we must overcome for our operational turnaround to proceed.”