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    Airchecker
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    The largest operator of U.S. radio stations is in big trouble, saddled with $20 billion in debt and nearly $350 million due this year. Officials with iHeartRadio’s parent company are warning that the company run by former MTV boss Bob Pittman is on the verge of collapse nine years after a highly leveraged $24 billion buyout by private equity backers Bain Capital and Thomas H. Lee Partners.

    Company officials are reporting that the next quarterly financial report “will include disclosure indicating there will be substantial doubt as to our ability to continue as a going concern for a period of 12 months,” iHeartMedia officials wrote in an April 20 SEC filing, notifying investors it continues to expect a negative cash flow and is uncertain if it will be able to refinance or extend the maturities of some of its borrowings.

    iHeartMedia owns iHeartRadio and billboard advertiser Clear Channel Communications. It began as a single radio station in Texas in the 70s and today operates more than 850 terrestrial radio stations in the U.S. The company has been battered in recent years by competition from Sirius XM radio and streaming services like Pandora and Spotify, as well as digital advertisers like Google and Facebook.

    It’s unclear what bankruptcy would mean for the company’s live events business, which will host the 2017 iHeartCountry Festival at Frank Erwin Center in Austin, Texas May 6 and will bring the iHeartRadio Music Festival to Las Vegas Sept. 23.

    Revenue fell 2.4 percent in the first quarter to $1.33 billion, while expenses rose 3 percent, according to the SEC filing. Operating income fell 73 percent to $114 million. As of March 1, the company had $365 million of cash on its balance sheet. In 2019, $8.3 billion in debt comes due, and the company appears to have no realistic way to pay it off. Moody’s has downgraded the iHeart’s bond ratings from stable to negative and wrote in December that it expected iHeartMedia would be forced into debt restructuring in 2017.

    “I think it will go into Chapter 11 and what will happen is what has happened in most of these (leverage buyout) cases,” Chuck Tatelbaum, bankruptcy expert and attorney at Tripp Scott law firm told Market Watch. “The lender will take back the company as part of a Chapter 11 plan, the other creditors will get nothing and the shareholders will be wiped out.”

    Meanwhile, Reuters reported Friday that a group of iHeartMedia lenders signed a cooperation agreement opposing a debt overhaul, a move that could threaten the company’s bid to avoid bankruptcy.

    It’s unclear what the collapse of iHeartRadio would mean for the music industry — the broadcasting titan boosts 250 million monthly listeners in 150 local markets through 858 owned radio stations. The iHeartRadio app has been downloaded more than one billion times with 100 million registered users.

    Pittman took the reins of iHeartRadio in 2011, hoping to parlay his early success with MTV into a turn-around for the highly leveraged broadcaster. Shortly after taking control, Pittman “transformed three floors of a Midtown high-rise into a Kubrickian spaceship,” according a March profile in Variety, complete with “modular fiberglass pods, exposed ducts, laser displays, and a long, white tunnel with video images projected on streams of mist.”

    Irving Azoff, who sits on the company’s board, told Variety that iHeartRadio is an “incredible company,” saddled by debt and a “terrible balance sheet.” Most experts agree a bankruptcy or debt restructuring feels inevitable wherein most creditors would swap debt for equity in a reformed company.

    “A day of reckoning appears to be coming. That’s no secret,” Azoff said.

    iHeartRadio’s growth coincides with the deregulation of the public airways — up until the mid-nineties, radio operators were not allowed to own more than two AM or FM stations in any market and were limited to 40 stations in the U.S. total. The 1996 Telecommunications Act, signed by President Clinton, eliminated the ownership cap, prompting an investor dash to buy up radio stations with debt-financing and corporate takeovers. As Variety writer Gene Maddaus explains: “At the end of it all, Lowry Mays was sitting at the top of the heap. Mays, who launched Clear Channel with a single station in San Antonio in the early 1970s, wound up with more than 1,100 stations.”

    Mays sold the company to equity firms Thomas H. Lee Partners and Bain Capital for $19 billion in 2006 — by the time the deal closed in 2008, a global financial recession led to a major drop in advertising revenue. Since trying to orchestrate a plan to use shares of sister company Clear Channel Outdoor to repurchase debt, iHeartRadio has found itself in court battling bondholders from issuing default notices.

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