iHeartRadio Pres. Darren Davis Testifies Financial Restraints Are 'Disrupting Our Operating Business Everyday'
May 18, 2016 at 3:43 AM (PT)
iHEARTCOMMUNICATIONS INC. v. BENEFIT STREET PARTNERS LLC in District Court, BEXAR COUNTY TEXAS (SAN ANTONIO) is underway, with BLOOMBERG reporting iHEARTMEDIA "has struggled to calm industry partners, lenders and employees spooked by the bankruptcy threat created by bondholders’ attempt to declare $6 billion in senior notes in default, a top executive testified in TEXAS."
“It’s disrupting our operating business every day,” said iHEARTRADIO Pres. DARREN DAVIS.
We’ve had $20 billion in debt for the last eight years, and we’ve never had any bankruptcy threat until the last 60 days
"DAVIS told the judge that the company’s line of credit was recently reduced from $1.5 million to $50,000, hampering its ability to quickly respond to market opportunities," notes BLOOMBERG. "And two of its largest manufacturing partners, who offer iHEARTRADIO as an integrated feature of products like televisions and cars, also claim to be 'very concerned' about sticking with a company rumored to be in financial trouble, he said."
“One company described bankruptcy as a death knell,” DAVIS testified. “It damages a brand perhaps irreparably.”
BLOOMBERG adds, "DAVIS said he feared that at least one of the company’s partnerships wouldn’t survive any potential bankruptcy 'based on conversations we’ve had'. DAVIS testified to the damage done by what the media giant calls a 'whisper campaign' by certain senior lenders who oppose the company’s shift of $500 million in shares of its outdoor-advertising unit to a subsidiary beyond the lenders’ reach. The company claims the move was specifically allowed under the loan agreements and will save millions in interest expense by letting iHEART buy back some debt at a discount when company shares are trading at relative lows."
ALL ACCESS reported on MONDAY (NET NEWS 5/16) that in advance of MONDAY's trial in its suit against bondholders seeking to declare it in default and accelerate bond payments, iHEARTMEDIA filed a disclosure statement with the SEC detailing proposals on the table at mediation that have been submitted by the bondholders and iHEART. In the Form 8-K's exhibits, a term sheet for the bondholders' proposal shows that the creditors are suggesting a 50 bps interest rate reduction and one year maturity extension on each tranche that also provides for a junior debt buyback cash allowance of $1.2 billion (more if total consolidated net leverage is below 9x).
“We’ve had $20 billion in debt for the last eight years, and we’ve never had any bankruptcy threat until the last 60 days,” BLOOMBERG reports DAVIS told TEXAS State Judge CATHLEEN STRYKER of SAN ANTONIO, who is trying the dispute without a jury. “I know what’s coming due in the next two years, and I know we’ve got plenty of money to make those payments. In the digital space, you’ve got to be growing your audience by 20% to 30% a year or you’re seen as a quaint service that’s found its place,” DAVIS told the judge.
DAVIS continued to testify that things are difficult behind the scenes, explaining how iHEART, "recently failed to attract the software engineers it needed to code a new service that will soon be offered by competitors."
“We couldn’t get the people hired,” he said, “so we’re not going to be there when you see this new service that’s written all about.”
BLOOMBERG reports, "DAVIS denied under questioning by the lenders’ attorney that his comments conflict with recent trade-press assurances by BOB PITTMAN, iHEARTMEDIA’s CEO, that company operations haven’t been disrupted by the default threat. He said those comments were aimed at reassuring company employees worried their jobs are in jeopardy."
“He’s trying to calm them down, let them know their card key is still going to work,” DAVIS said. “But we’re still ordering pizza on FRIDAYS, and we’re still ordering bagels to start MONDAYS.”