Radio Biz In Trouble, Clear Channel Pushed Toward Bankruptcy

by Erik Sass , June 30, 2009

The radio business was hit with a barrage of bad news this week, with credit downgrades and speculations of bankruptcy for big broadcasters.

The destruction derby started with credit downgrades for Radio One and Citadel, which are both now considered to be at serious risk of defaulting on their substantial debts.

Radio One's rating was knocked down from CCC+ to B- by Standard and Poor's, according to the Baltimore Business Journal. The credit rating firm believes the urban format radio group is borrowing more money than allowed under the terms of its various lending covenants.

Citadel was downgraded by Moody's Investor Service from Caa2 to Caa3, while raising its official measure of Citadel's probability to default.

In addition, it is becoming apparent that Clear Channel Communications' creditors intend to push the behemoth into bankruptcy, hoping to gain control of its equity at a big discount, then sell them off. According to the San Antonio Express News -- a close watcher of the San Antonio-based company -- this outcome seems increasingly likely as creditors block Clear Channel's plan for an internal debt swap between the corporate parent company and Clear Channel Outdoor, one of its divisions.

Blocking the planned debt swap would seem to leave Clear Channel Communications with no other option besides default -- putting pressure on its owners, Bain Capital Partners and Thomas H. Lee Partners, to cut their losses. The two private-equity firms took the company private in 2007 in a deal that saddled the company with about $22 billion of debt.

Also, Cumulus Media said Tuesday that it reached an agreement with lenders that will temporarily give it some breathing room. According to Cumulus president and CEO Lew Dickey Jr., the amendment to the lending agreements will allow Cumulus to avoid being declared in default if it violates the terms of its financial covenants until March 31st, 2011. Cumulus carries just under $650 million of debt.

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3 comments about "Radio Biz In Trouble, Clear Channel Pushed Toward Bankruptcy ".

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Michelle Kalanja from Gulf Coast Marketing Servivces, July 1, 2009 at 8:07 a.m.
The demise of this company needs to be blammed solely on the people who are at the helm. As a former CC employee and manager, managment has lost the concept of what business they are in: "service". I now own an agency and of my 9 clients not one of them want to advertise on radio due to the experiences they have had in the past with CC, mainly attitude and lack of follow up from reps.AE's are constantly in sales meetings and seminars or consumed with unnecessary paperwork. The churn is so high amongst employees at this company and no one is paying attention to the real reasons the sales people are leaving. John Hogan keep hiding your head in the sand and continue implementing time consuming sales techniques that do not work and require more paper work from employees for management satisfaction. Let employees do what they were hired for: selling radio and servicing clients. But I guess its too late for this.
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Leon Thomas from Flashy Trends, July 1, 2009 at 9:56 a.m.

This is what happens when you buy DEBT.

Paula Lynn from Who Else Unlimited, July 1, 2009 at 9:20 p.m.

MK: This is not just a radio problem. LT: Bingo!