iHeartCommunications Battles Bondholders Over Stock Transfer To Subsidiary
Report: Moelis & Co. Hired As Financial Adviser
March 8, 2016 at 11:10 AM (PT)
iHEARTMEDIA INC. has disclosed that parent iHEARTCOMMUNICATIONS, INC. was served with a notice of default by bondholders on MONDAY (3/7) objecting to what they said were violations of covenants when shares of the CLEAR CHANNEL OUTDOOR HOLDINGS INC. division were transferred to new subsidiary, BROADER MEDIA. In response, iHEARTMEDIA, which arranged the transfer of shares to BROADER MEDIA as part of its attempt to address $20.6 billion in debt, says that it filed suit in a TEXAS court to get a declaration that the transfers were legal before the notices were served.
According to an SEC Form 8-K filed TODAY (3/8), iHEARTCOMMUNICATIONS, INC. received the notices from holders of at least 25% of the outstanding principal amount of four of the company’s outstanding series of Priority Guarantee Notes, alleging that the transfer of 100,000,000 shares of Class B common stock of CLEAR CHANNEL OUTDOOR HOLDINGS, INC. from CLEAR CHANNEL HOLDINGS INC. to BROADER MEDIA, LLC, an “unrestricted subsidiary,” violated covenants in the indentures with the Notes.
The notices also assert that after 60 days, the move will trigger an Event of Default that will accelerate the due date of their indebtedness. "As we have communicated to the Holders on multiple occasions," the filing reads, "we believe the Contribution was made in full compliance with all of the provisions of the Indentures and the Holders have no basis to issue the Notices... We strongly object to the allegations contained in the Notices, and intend to vigorously contest the issuance and the validity of the Notices."
iHEART filed its suit in State District Court in BEXAR COUNTY, TX against the holders and indenture trustees asking the court to rule by declaratory judgment that it is not in default or in violation of any covenant or provision of the Indentures, and seeking a temporary restraining order preventing the holders from accelerating the debt.
"We strongly believe that the Contribution did not cause a default under any of the Indentures or under the terms of any of our other indebtedness. If, however, we are unable to obtain the requested relief from the Court or are otherwise unable to successfully contest the validity of the Notices and any subsequent acceleration of a material portion of our indebtedness, then we would need to pursue other available alternatives to address the claimed defaults," the filing adds.
And in a statement provided to ALL ACCESS, iHEART added, "The strong performance of our operating business provides us with the flexibility to manage our capital structure in a prudent manner. In full compliance with our debt covenants, we continue to evaluate opportunities to strengthen our balance sheet.
"We believe our recent contribution of CLEAR CHANNEL OUTDOOR HOLDINGS, INC. stock to our subsidiary BROADER MEDIA, LLC constituted a permitted investment under, and fully complied with, our financing agreements. We strongly believe the notices of default issued by the lender group based on the contribution are invalid.
"Prior to receiving the notices, we filed a lawsuit in the State District Court in BEXAR COUNTY, TEXAS to reaffirm our position that the contribution was permitted. We intend to take any other actions necessary to protect iHEARTMEDIA and remain willing to engage in constructive discussions with any of our various groups of lenders to position iHEARTMEDIA for long-term growth."
Meanwhile, a source tells REUTERS that iHEARTMEDIA has hired MOELIS AND CO. as financial adviser, and has asked the firm to help it review offers from a minority of senior creditors that may help stave off immediate trouble as it tries to stretch out its due dates, although the plans may rankle junior creditors who might receive less favorable treatment.