Citadel Broadcasting Judge Approves Reorganization Opposed by Shareholders
Citadel Broadcasting Corp., the third-largest radio station owner in the U.S., won court approval to exit bankruptcy over the objections of shareholders who said the company is worth more than executives and bankers assert.
U.S. Bankruptcy Judge Burton Lifland in Manhattan said yesterday he will sign a confirmation order approving Citadel’s reorganization plan. He overruled objections by the shareholders.
“The debtor has met the burden of confirmation,” Lifland said at the close of a nine-hour hearing in New York that centered around the valuation of the company.
Shareholders led by Aurelius Capital Partners LP opposed the plan, saying that bankers valued the company too low, thus denying owners of stock any recovery on their investment. Lazard Ltd., Citadel’s banker, used the company’s earnings projections to arrive at a valuation that showed the company is worth less than its debt.
Citadel, based in Las Vegas, filed for Chapter 11 protection from creditors in December, saying the recession “put a chokehold on advertising spending,” its main source of revenue.
The reorganization plan will give holders of $2.14 billion of secured debt a new $762.5 million loan and 90 percent of the shares of the reorganized company. Holders of unsecured claims will receive the remaining 10 percent of the stock and $36 million in cash. Equity holders will receive nothing.
More than 55 people packed the Manhattan courtroom yesterday for the second of a two-day confirmation hearing during which Lifland heard testimony from bankers, analysts and Citadel’s top executives about the fairness of the valuation.
Lifland refused to delay the hearing on the confirmation, after he denied opponents a chance to have one of its two expert witnesses testify.
He ruled against allowing testimony from a professor of finance who planned to talk about the valuation of the company. Lifland agreed with Citadel’s lawyers that the witness didn’t have expertise in valuations of broadcasting companies.
“We’re dealing with the radio industry sandbox and there are a lot of nuances in that sandbox,” Lifland said. “There is no nexus between his credentials and the subject matter of his testimony.”
Allan Brilliant, a lawyer for Aurelius, had asked the judge to postpone the rest of the hearing to give shareholders time to come up with new expert testimony about the valuation. The judge gave them one hour.
Christopher Ensley, a former radio industry analyst at Bear Stearns who testified for Aurelius earlier yesterday, was asked by Brilliant to develop an opinion on Citadel’s valuation during that recess and take the stand again.
Upon returning from the recess, Brilliant asked the judge to adjourn the hearing until the end of the week to give Ensley more time to work on the valuation.
“It’s not fair for Mr. Ensley to prepare this valuation in one hour in the hall,” Brilliant said.
The judge denied the request for extra time.
The witness whom Lifland didn’t allow to testify was Gregg Jarrell, a professor at the University of Rochester.
Brilliant said he had no comment, when asked if Aurelius would appeal the ruling confirming the plan.
Aurelius argued that a recovery in radio advertising indicates that Citadel’s projections for earnings and revenue this year are too low.
Citadel updated its projection for 2010 Ebitda -- or earnings before interest, taxes, depreciation and amortization - - after a better-than-expected first quarter. Lazard increased the company’s valuation to reflect that higher Ebitda estimate. Lazard values the company at $1.91 billion to $2.165 billion, with a midpoint of $2.04 billion, less than its $2.28 billion in secured and unsecured claims.
“These are our best estimates as we understand them,” Farid Suleman, the company’s chief executive officer, said in court May 12. He raised the Ebitda estimate for 2010 to $232.4 million after the first quarter from about $210 million in February.
Suleman “has been very credible in his testimony,” Lifland said.
‘Glad It’s Over’
“We’re glad it’s over and we can get on with running the company,” Suleman said in an interview after the judge’s ruling.
Aurelius and two other shareholders, Virtus Capital LLC and the Kenneth S. Grossman Pension Fund, argued that the updated projections are still too low. Aurelius valued Citadel at $2.6 billion.
“What testimony has shown is we have an industry recovery and Ebitda is rising quickly,” Steve Gidumal, co-founder of Orlando-based hedge fund Virtus, said in an interview. “Now there’s testimony that the Lazard banker spent only 45 minutes vetting the increased projections by the debtor.”
Louis Zachary, the Lazard banker who supervised the Citadel valuation, said in court May 12 that he “had ample justification that management’s projections were appropriate.”
Zachary also said the bankers had received no offers from investors to buy Citadel since some indications of interest last summer. At that time the company was looking to either restructure its debt or be acquired.
17.3 Million Shares
Aurelius bought 17.3 million shares of Citadel beginning on March 30 for $1.35 million, Citadel said in court papers, with the stock trading at pennies.
Shares of Citadel dropped 3 cents, or 58 percent, to 2 cents at 9:40 a.m. New York time in over-the-counter trading, after falling 57 percent yesterday.
Citadel owns 224 radio stations in cities including New York and Chicago and distributes programming to 4,000 stations. The company added $2 billion in debt when it acquired the ABC radio stations and network from Walt Disney Co. in 2007.
The largest radio station owner in the U.S. is Clear Channel Communications Inc. and the second-largest is CBS Corp.’s radio unit.
The case is In re Citadel Broadcasting Corp., 09-17442, U.S. Bankruptcy Court, Southern District of New York (Manhattan).