These so called legacy noteholders own over $200 million in iHeart bonds and claim the company agreed it would not grant any other creditors a superior position to theirs without ensuring they were also treated "equally and ratably."

In a preemptive move made in anticipation of what they say is an expected Chapter 11 filing from iHeartCommunications, Inc. on or before March 5, a group of unsecured bondholders are asking the commercial division of the New York State Supreme Court to grant an injunction that would provide a provisional lien against some of the radio chain's assets. This would make it so their debt has the same protections as other classes of iHeart debtors.

Due to a 2008 leveraged buyout of the company by Bain Capital and Thomas H. Lee Partners, iHeart carries some $20 billion in debt, with interest payments, with different classes of debt holders. These include banks that have provided some $6 billion in term loans and various debentures due in different years carrying different interest payments totaling another $14 billion. Within the latter group are some bondholders seeking the injunction, who refer to themselves as legacy noteholders, and include funds run by the Bank of New York, Mellon Trust, Hutchin Hill Capital and Angelo, Gordon & Co.

Those legacy noteholders own over $200 million in iHeart bonds and claim the company agreed it would not grant any other creditors a superior position to theirs without ensuring that the legacy noteholders were also treated "equally and ratably," meaning they would have the same standing as those other debt holders.

While such covenants are common in loan agreements, they can be intricate and some may see loopholes depending on interpretations that could lead to disputes. For example, depending on the loan agreements, if the legacy notes are treated equally and ratably when allowances are made to other debt holders, or if the agreement excludes some asset classes, the legacy noteholders wouldn't necessarily have to be informed of the new debt deals.

But in their filing with the court, the legacy noteholders say they have discovered that iHeart for more than six years has granted superior standing in the form of secured debt to some other iHeart creditors.

When the legacy noteholders discovered on Dec. 5, 2017, that iHeart had provided holders hidden encumbrances to some assets for notes issued as early as 2011 through 2015, they immediately gave notice to iHeart that they wanted the same standing. But on Feb. 23, the company refused to do so, according to the complaint.

Prior to revealing its stance on Feb. 23, during November and December, the company had been negotiating a deal that would see the legacy noteholders receive new senior debt equal in stature to the term holders and some of the other bond holders. But recently iHeart backed away from the negotiating table, according to the complaint filed by Gregory Starner and Jason Zakia of White & Case LLP, on behalf of the plaintiffs.

The legacy noteholders claim that the temporary relief, in the form of a provisional lien "is imperative," especially in light of iHeart's precarious financial state. Moreover, they note the temporary lien would be subject to any contrary final decision by the court itself.

Meanwhile, prompting the fear that iHeart will soon file for Chapter 11 protection, Liberty Media is offering to pay $1.16 percent for 40 percent of a restructured company, following a Chapter 11 filing. But such an arrangement would only stick if iHeart's owners were able to negotiate a pre-packaged Chapter 11 filing. Otherwise, once the company files for Chapter 11 protection, it would jettison Bain and Thomas Lee's ownership stake and other bidders could come out of the woodwork seeking a bargain too. Or maybe iHeart management will have the opportunity to make a compelling case to let it re-organize under Chapter 11 protection. In any event, a Chapter 11 filing is usually like a roll of the dice and it is never clear who will emerge as losers, bigger losers and, possibly, winners in the process.

Another reason iHeart may file on March 5 is because the company missed a $106 million interest payment due Feb. 1 and has a 30 day-grace period to cure that missed payment that ends March 5.

Moreover, iHeart’s 10-K filing is due any day now and the legacy noteholders doubt it will “obtain a going concern opinion,” which would cause cascading defaults throughout the company’s capital structure, also increasing pressure for iHeart to file for Chapter 11, the complaint further states.

If the defendant files for bankruptcy without first granting plaintiffs the same security or seniority provisions provided other bond holders, the legacy noteholders "will suffer irreparable harm," according to the complaint. That’s because any such contractual rights would be at risk and likely unenforceable in the bankruptcy proceedings, which would further likely result in the legacy note holders suffering a drastically reduced recovery, as compared to the note holders that subsequently enjoyed some degree of hidden seniority or security, the complaint argues.