GAMCO Lawsuit Settlement, Plan Confirmation Delay, Exec Bonus Plan Draw Objections In iHeartMedia Bankruptcy Case

Objections

iHEARTMEDIA's path to emerging from Chapter 11 bankruptcy has hit a couple of speed bumps. 

Creditors have filed objections to iHEART's motion filed SATURDAY (12/8) to bring into the Chapter 11 proceeding the settlement of a class action involving CLEAR CHANNEL OUTDOOR HOLDINGS and MARIO GABELLI's GAMCO ASSET MANAGEMENT, INC., a move that creditor group TERM LOAN/PGN GROUP, an umbrella designation for term loan holders and PGN claims totalling over $7.4 billion in debt, says is unnecessary and should not be handled by the bankruptcy court; the addition of the CCOH settlement, the objections assert, create a two-step process that is unnecessarily delaying the confirmation hearing that had been scheduled for TOMORROW (12/11) and potentially pushes the confirmation months later than planned.

The creditors add that Rule 23 of the civil procedure rules do not provide authority for the Bankruptcy Court to "resolve a state court class action involving non-debtor defendants and plaintiffs who are not creditors of the estate and who have filed no proofs of claim in the bankruptcy case."  The motion to have the Bankruptcy Court consider the GAMCO settlement, the creditors add, "inappropriately elevates the interests of the non-debtor defendants in the DELAWARE Action over the interests of the Debtors and their stakeholders, including thousands of creditors, employees, and counterparties" and the separation of CCOH from iHEART can be handled by DELAWARE Chancery Court without delaying confirmation of the reorganization plan.  GAMCO is not a creditor of the iHEART estate.

In a separate filing, CCOH creditor NORFOLK COUNTY RETIREMENT SYSTEM, which had sued iHEART in 2017 for breach of fiduciary duties to CCPH and its minority stockholders for "sweeping" all cash generated by CCOH to iHEART on a daily basis, objects to the CCOH-GAMCO settlement being brought into the iHEART case for approval, calling the settlement "not fair, reasonable, and adequate, and will significantly prejudice the interests of CCOH and its minority stockholders."

Like the TERM LOAN/PGN GROUP objection, NORFOLK COUNTY characterizes the CCOH/GAMCO settlement as an "attempt to resuscitate the release of CCOH’s directors and officers as well as BAIN (CAPITAL) and THL (THOMAS H. LEE PARTNERS) by wrapping it into the terms of CCOH’s separation."  NORFOLK COUNTY also points to the lack of justification for handling the CCOH settlement as an emergency, and objects that the settlement consideration will not be directly paid to CCOH stockholders.  Finally, NORFOLK COUNTY is objecting that the CCOH/GAMCO settlement purports to settle claims derivatively on behalf of CCOH, including the NORFOLK COUNTY 2017 lawsuit.

Bonus Plan Draws An Objection

In addition, the Acting UNITED STATES Trustee for Region 7, HENRY G. HOBBS, JR., has filed an objection to iHEART's 2019 incentive plans for 11 insiders on the company's senior management team and 815 non-insiders.  The objection contends that the plan for insiders "violates the strict limitations imposed by section 503(c) of the Bankruptcy Code. The bonuses under the 2019 IPI are primarily retentive in nature and thus subject to section 503(c)(1). And even if subject to the standards in section 503(c)(3), the Debtors have not shown that the 2019 IPI is justified by the facts and circumstances of these cases."  As for the non-insiders, the Trustee does not object to the plan other than asking iHEART to meet its burden to show that the participants are not insiders.

Under the proposed incentive plan, insiders would get from $22.1 million up to $33.2 million for 2019, including up to $13.95 million for Chairman/CEO BOB PITTMAN and up to $7.95 million for President/COO/CFO RICH BRESSLER.  The bonuses would be triggered by consolidated OIBDAN performance goals on a quarterly basis, except for three insiders whose bonuses would be determined by segment OIBDAN rather than consolidated OIBDAN.  The objection notes that in the wake of ENRON and other scandals, the Bankruptcy Code was amended to prevent bonuses for executives merely staying with the company through the bankruptcy process unless the insiders receive bona fide job offers from another business at the same or greater rate of compensation and the insider's services are essential to the survival of the business.  And the trustee also notes that the OIBDAN goals were not set very high, with actual performance in 2015-17 falling within the goal range.

And late MONDAY, iHEART filed a motion noting that the hearing on the incentive plan originally scheduled for TUESDAY will now be held on DECEMBER 17th.

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