- Texas judge extends order blocking debtholders' default notice
- Senior lenders claim radio giant improperly shifted assets
IHeartMedia Inc. won more time to try to convince a Texas judge that the company properly shifted shares valued at more than $500 million into a subsidiary beyond some creditors’ reach.
Andrew Entwistle, a lawyer representing Gamco Investors Inc., an intervenor in the case on the company’s side, said a temporary restraining order prohibiting debt holders from issuing default notices on the company was extended on Wednesday by agreement among the parties. A trial over the asset shift will be held in San Antonio on May 16.
The extension means holders of the company’s priority guarantee notes can’t immediately issue notices of default that might have triggered calls on more than $12 billion of debt and must wait until the judge rules whether the company’s asset transfer was valid.
More than a dozen creditors, including some hedge funds, were poised to issue the default notices on at least 25 percent of the outstanding principal of four priority guarantee notes at the company formerly known as Clear Channel Communications Inc.
The senior lenders complained that the largest U.S. radio-station owner violated its debt covenants by moving the shares to a subsidiary out of the creditors’ reach.
“We believe our contribution of Clear Channel Outdoor Holdings Inc. stock to our subsidiary Broader Media LLC fully complied with our financing agreements,” iHeart said in a statement Wednesday. The company said it looks forward to an expedited trial.
The default notices could have triggered a cascade of additional debt repayment obligations, potentially threatening the company’s financial viability, iHeart’s lawyers told the judge in state court in San Antonio, where the company is based.
“Sixty days after the issuance of the notices, the noteholder defendants can accelerate all the notes, making more than $12 billion immediately due and payable,” Kevin Huff, one of the company’s lawyers, said during a three-day hearing. “I think you know what the consequences of that are,” he told the judge.
Credit Default Swaps
The company claims debtholder Bluejay Securities, which is an affiliate of Elliott Management Corp., is set to reap a financial windfall if creditors can push the radio giant into default because it bought short-term credit default swaps.
That "helps to explain why Bluejay Securities and other noteholder defendants issued baseless notices of default," iHeart’s lawyers said in court filings.
Scott Fletcher, a lawyer for Franklin Advisors Inc., one of the fund managers threatening to issue defaults, said the debtholders are merely trying to protect their ability to get their money back.
“IHeart could not make limitless transfers of its assets so that nothing would remain to repay iHeart’s debt,” Fletcher said in a court filing opposing the radio giant. As the funds interpret their loan covenants, he said, none of the handful of specific exceptions covers the stock transfer to the subsidiary.
IHeart, which owns more than 850 radio stations with 245 million monthly listeners, is fighting to rein in debt it took on in its 2008 acquisition by private equity firms Bain Capital Partners LLC and Thomas H. Lee partners LP, a $24 billion deal that came to symbolize the excesses of the pre-crisis buyout boom. Since then, the radio business has become more competitive as Pandora, Spotify and Apple have lured millions of listeners with online radio and on-demand downloads.
The broadcaster’s immediate challenge is a wall of almost $10 billion of debt that comes due in the next three years. It has $193 million of notes that mature in 2016, $230 million under a revolving credit line that’s due in 2017, more than $1 billion in obligations maturing in 2018, and $8.3 billion in bonds and term loans due in 2019, according to data compiled by Bloomberg.
The case is IHeartCommunications Inc. v. Benefit Street Partners LLC, 2016CI104006, 285 Judicial District Court of Bexar County, Texas (San Antonio).