Sound Waves: Westwood One Avoids Default



Another potential default has been averted in the radio industry with deals between Westwood One and its main lenders to waive the covenants governing borrowing by the company, which syndicates popular radio programs to broadcasters around the country.

This is good news for Westwood One, but a bad sign for radio in general, suggesting that widespread financial distress is continuing into the fourth quarter.

In return for lender lenience on the terms of debt covenants, Westwood One has agreed to set aside at least $15 million from a planned stock offering and the sale or lease of certain properties (possibly more, depending on the success of these sales) to pay down senior notes. If neither sale occurs, the company will pay at least $3.5 million on these notes.

The covenants governing Westwood One lending agreements with Wells Fargo Foothill and various holders of senior notes were due to be reviewed at the end of December, an indication that Westwood One anticipates a weak fourth quarter.



Adding to the negative outlook, in a separate filing with the Securities and Exchange Commission, Westwood One also issued a gloomy forecast for 2010.

This negative outlook has implications not just for Westwood One, but for the radio industry at large. Since the business is tied to the performance of big radio broadcasters, the corporate forecast suggests that executives expect a continuing slump in demand from broadcast clients squeezed by shrinking advertising revenues.

Indeed, Westwood One is far from alone in experiencing financial woes. After a steep decline in its stock price, Citadel Broadcasting was delisted by the New York Stock Exchange on March 6. Citadel's stock price plummeted along with the broadcaster's revenues over the last couple of years, losing 99% of its value since 2004, as investors bail on a medium in distress.

Also, rumors have circulated that Clear Channel Communications faces technical default under the terms of its lending covenants, prompting its private-equity owners, Thomas H. Lee Partners and Bain Capital Partners, to approach lenders in the hopes of obtaining easier terms. However, the private-equity owners have denied this, and a spokesperson for Clear Channel said the company's finances are sound.

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