IHeartMedia is expected to disclose insolvency concerns

The bankruptcy filing by San Antonio-based iHeart Media Inc. likely ranks among the largest in recent corporate history. The bankruptcy filing by San Antonio-based iHeart Media Inc. likely ranks among the largest in recent corporate history. Photo: John Davenport /San Antonio Express-News Photo: John Davenport /San Antonio Express-News Image 1 of / 1 Caption Close IHeartMedia is expected to disclose insolvency concerns 1 / 1 Back to Gallery

San Antonio-based iHeartMedia Inc.’s first quarter earnings report Thursday will likely show new cash flow problems and insolvency concerns as the company struggles to restructure its $20.4 billion in debt, analysts said.

The radio and billboard giant is expected to resume a string of 27 quarterly losses that was interrupted by a profit in the fourth quarter that came from a $40.6 million one-time gain from the sale of some of its U.S. billboards.

The company warned investors April 20 that it may not survive the next 10 months. IHeart has generated negative cash flow over the last two years, meaning that it’s spending more money on its debt and other expenses than it’s generating. And this year will be no different, the company said. It said the first quarter results will also be weighed down by a $12.8 million charge tied to fluctuations in foreign exchange rates.

Seth Crystall, a Debtwire senior credit analyst, said the loss this year will be higher than the $88.5 million it lost in the first quarter of 2016 when the company pared its losses by selling off some of its assets.

IHeartMedia spokeswoman Wendy Goldberg in New York declined to comment.

Cash flow from iHeartMedia’s radio side, comprised of more than 850 radio stations with seven in San Antonio, was substantially down for the first quarter, said Bloomberg Intelligence analyst Philip Brendel.

“Investors (on Thursday) will be focused on why the radio segment is experiencing negative cash-flow metrics. The numbers suggest revenue was up, but the cash flow (for the radio unit) was down more than 20 percent for the quarter,” Brendel said in an interview.

He told investors in a research note that the company’s worsening cash flow raises the risk that iHeart may need to file for Chapter 11 bankruptcy protection.

“There’s substantial doubt the company will not be able to pay its debt over the next 12 months,” he said.

Formerly named Clear Channel Communications, the company calls itself “the leading media company in America with a greater reach in the U.S. than any other radio or television outlet.” The company’s streaming-radio application, iHeartRadio, had 96 million registered users at the end of 2016.

Chairman and CEO Bob Pittman, considered a visionary in the media and entertainment industry, was tapped in 2011 to run the company after the 2008 leveraged buyout by two Boston private equity firms was heralded as a disaster that saddled the company with too much debt. Pittman helped create MTV and is credited with turning around Nickelodeon. He’s also been CEO of AOL and chief operating officer of AOL Time Warner after the merger.

But even his media savvy isn’t proving to be enough to turn around iHeart, which hosts syndicated radio shows for the likes of Rush Limbaugh, Sean Hannity, Steve Harvey and Ryan Seacrest.

IHeartMedia has $317 million in debt obligations maturing in 2017 and $324 million in 2018, but $8.4 billion come due in 2019. The company is in tense negotiations with large lenders and debt investors to try to exchange $14.6 billion of the company’s bonds and loans to buy it some more time.

“If the creditors stand firm that iHeart’s proposed restructuring framework isn’t sound, it’s possible that the negotiations pivot toward restructuring solutions in the context of a bankruptcy,” Brendel wrote to investors. “Weakness in the profitability of iHeart’s radio units may be a factor in creditors’ decision-making on whether to exchange their priority guarantee notes or term loans. Liquidity problems could upend any out-of-court restructuring strategies iHeart may be contemplating, including the ongoing exchange offer.”

The company has offered to exchange $14.6 billion in bonds and loans that would pay higher returns while pushing back maturities by two years and forgiving varying amounts of debt. But the debt-exchange has attracted little interest from investors and lenders, the company recently said, and the deadline has been extended three times to May 12 since it was first issued March 15.

As of March 31, iHeartMedia had $365 million in cash, $201 million of which was held by the company’s billboard subsidiary, Clear Channel Outdoor Holdings Inc.

IHeart directors may decide to cancel the debt-exchange offer if participation remains low, Brendel said. Or directors may pursue “a consensual, pre-arranged reorganization plan with its term lenders and priority guarantee noteholders in a Chapter 11” filing, Bloomberg’s Brendel wrote.

Much of the company’s debt stems from its 2008 buyout of the company by Bain Capital and Thomas H. Lee Partners. The private equity firms own 70 percent of iHeartMedia. The rest of the company’s stock is publicly traded.

dhendricks@express-news.net