iHeartMedia Inc. on Thursday followed through with its promise to include “going concern” language in its next quarterly earnings, with the warning in its first-quarter report of “substantial doubt” as to its ability to survive another year.

The biggest operator of radio stations in the U.S. IHRT, +4.03% is struggling with a $20 billion debt burden it took on as part of a $24 billion leveraged buyout of then Clear Channel Communications Inc. by private-equity firms Bain Capital and Thomas H. Lee Partners in 2008. The company is struggling to refinance or extend maturities on some of its borrowings and is currently pushing creditors to participate in a number of proposed exchange offers.

iHeartMedia has almost $350 million of debt coming due this year, and more than $8.3 billion of debt coming due in 2019. The owner of iHeartRadio and Clear Channel Outdoor had $365 million of cash at end March.

“Our current operating plan indicates we will continue to incur net losses and generate negative cash flows from operating activities given iHeartCommunications’ indebtedness and related interest expense,” the company said in its earnings release.

“ “iHeart has a fundamental business model that probably isn’t all that viable. The disruption in the marketplace is going to force them to rethink that model in the long term.” ” — Drew McManigle, managing director, SierraConstellation Partners LLC

In the first quarter, revenue fell 2.4% and operating income fell 73%, as a gain on an asset sale in the year-earlier period was not repeated.

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The big surprise in the quarterly numbers was an unexpected rise in expenses, which executives on the company’s earnings call failed to fully explain, said Tim Hynes, analyst at Debtwire. The company said its direct operating and selling, general and administrative costs jumped 11.2% in the quarter.

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“They were pretty vague on the call and everyone had the same question: What caused expenses to go up so much?” said Hynes. “They said it related to media promotions and signing talent, but they were not specific.”

Executives acknowledged that the advertising market was weak, driven partly by slowing sales in the automotive sector, said Hynes. Earnings from Google parent Alphabet Inc. GOOGL, -1.50% GOOG, -1.33% and social media site Facebook Inc. FB, -3.26% this week showed they are gaining a lot of ad market share from traditional media companies.

iHeartMedia may have booked extra expenses in the quarter to put further pressure on bondholders to participate in bond and loan exchanges, he said. The company is trying to persuade its creditors to accept a series of exchange offers that would allow it to refinance more than $14 billion of term loans and other debt, offering new debt, equity and ownership in Clear Channel Outdoor Holdings. After its lenders failed to take up that offer in early April, the company extended the deadline.

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Drew McManigle, managing director of SierraConstellation Partners LLC, a financial advisory and turnaround firm, said the company is likely to be forced into some kind of restructuring, most likely one that includes a restructuring support plan, such as a prepackaged bankruptcy in which creditors are on board with a rescue plan before a filing is made.

“iHeart has a fundamental business model that probably isn’t all that viable,” he said. “The disruption in the marketplace is going to force them to rethink that model in the long term.”

iHeart, which began life as a single radio station in San Antonio in the early 1970s, today operates more than 850 radio stations across the U.S. But the radio sector has struggled with competition from the likes of streaming services Pandora and Spotify. That has pressured ad sales, which were already on a downward track as ad dollars flock to internet giants.

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McManigle noted changing consumer behavior among younger Americans, who are more likely to listen to their own downloaded music or use streaming services than radio. The death of local radio has exacerbated the trend, he said.

But the company is now in a dire state, with declining revenue, big losses and huge debt interest costs.

“I would be hard-pressed to believe the CFO doesn’t think they will hit the wall some time soon,” he said.

The two equity sponsors also own debt, “so they can play on both sides of the table. How other credit groups come out is another issue,” he said.

Debtwire’s Hynes said he expects the company will succeed in pushing through a debt exchange and will follow with further exchanges.

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“There will be some resolution, probably not exactly what the creditors want, but the equity sponsors will want to keep control,” he said. “They’ll work something out that will give them the chance to go forward and if the business turns around, they could survive.”

iHeartMedia’s most active bonds, the 9.000% notes that mature in March of 2021, were quoted at 75.66 cents on the dollar, according to MarketAxess. The longer-dated 7.25% notes due in October of 2027 were trading at 40 cents on the dollar.

In the equity market, iHeartMedia shares were down 7%, while the S&P 500 SPX, -0.46% was flat.

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