Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

IHeartMedia has been playing for time since its ill-fated buyout. Now it must face the music. 

The radio broadcaster and outdoor billboard owner was taken private in 2008 by Bain Capital and Thomas H. Lee Partners. The deal saddled the company, then known as Clear Channel Communications, with so much debt that it hasn't posted a profit since. 

IHeartMedia has struggled to pay down the debt loaded onto it following its 2008 buyout.
Source: Bloomberg, company filings

Its latest headache came Tuesday in the form of bondholder allegations that one of its units is in default.

IHeart transferred shares of Clear Channel Outdoor Holdings to a separate subsidiary, which is now able to issue new debt guaranteed by that stock. Such debt could be used in an exchange to replace existing unsecured obligations (some of which IHeart owns), giving those holders a claim to the Clear Channel Outdoor stock in the event of bankruptcy. So it's no surprise that senior lenders are arguing that the share transfer violates credit agreements, a claim the company is contesting.

The value of IHeartMedia's unsecured debt has been decimated in recent months.
Source: Bloomberg

But even if it is decided that IHeart's share transfer was legitimate, IHeart is simply delaying the inevitable -- a restructuring, or more likely, bankruptcy.  Years of minimal, sometimes negative, free cash flow has handicapped the company from paying down debt.  

It doesn't help that its earnings, while relatively stable at $1.8 billion in 2015, haven't rebounded to pre-crisis levels of $2.2 billion in 2007. That's in part due to heightened competition from services such as Spotify, Apple Music and Pandora Media (which is facing problems of its own). 

Treading Water
iHeartMedia's interest coverage ratio has hovered below 0.75 since 2010. A prolonged measure below 1 shows a company is in poor financial health.
Source: Bloomberg

The company is said to have hired Moelis & Co. to negotiate with senior lenders, which could see them agree to push out more debt maturities. That's been one of a few ways IHeart has been avoiding an eventual restructuring or bankruptcy, along with shedding non-core assets and paying itself dividends from its outdoor advertising arm. It may be time instead to accept fate and let its swan song play out. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. If the share transfer is deemed to be in violation of IHeart's credit agreements, bondholders can make more than $6 billion immediately due and payable, which would force the company into bankruptcy. 

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Gillian Tan in New York at

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