iHeartMedia's Thin Skin on Corporate Finances

A funny thing happened just hours after I posted last week’s update on iHeartMedia’s dance with bankruptcy earlier this year: I got an e-mail from a PR flack contesting my analysis. But it wasn’t just any flack — it was Wendy Goldberg, iHeart’s chief communications officer. She was displeased with several points I made.
To begin, Goldberg asserted that I had misconstrued the timeline of events surrounding the company’s near-default. Instead, iHeart conducted a pre-emptive strike against “a small group of lenders” who planned to call in some $6 billion of the company’s $20+ billion outstanding debt burden within 60 days. (This would indeed have immediately tipped the company into default.) Secondly, my she called my assertion that this close call, in my words, worried “the market that the conglomerate is just steps away from bankruptcy” was seemingly, in her words, “confused at best, and speculation at worst.”
Finally, Goldberg took umbrage with my contention that iHeartMedia remains near the precipice: “I am assuming this is your own opinion or speculation, and if so you should either couch it as such or remove it.”
It’s not unheard of to get angry-mail from public-relations professionals attempting to massage a story more in line with corporate interests. But for the nation’s largest radio, broadcast streaming, and outdoor advertising conglomerate to sic its CCO on a blog is most definitely unusual. I responded that iHeart’s lawsuit against its lenders was a (successful) attempt to “beat the punch” on the notice of default — which is, in fact, typically the first step in collections-litigation at this rarified level. (I also clarified the language in the post to make this more apparent.)
However, the next two contentions are straight up piffle, to which I responded (links added here for context):

The fact that iHeart is alleging in its latest suit that the default-avoidance “cost it the ability to promptly refinance some of its debt and increased the cost of restructuring” is tantamount to “worrying the market that the conglomerate is just steps away from bankruptcy.” If this were not the case, then why the difficulties with and increased costs of refinancing? Or the precipitous drop in the company’s stock price while the default notice and subsequent litigation played out? . . .

Similarly, why would iHeart, in multiple SEC filings, caution that the company may not be able to successfully refinance its debt and add two members to its BoD within the last few months who have specific and extensive experience in corporate bankruptcies and restructuring, were fears of a potential bankruptcy not in play here? Is it also not true, like the Associated Press, Bloomberg, and the New York Post have reported, that refinancing talks have reached an impasse and some creditors now favor bankruptcy over refinancing?

I mean, the math is pretty clear: iHeart has nearly $21 billion in liabilities, of which nearly $1 billion comes due over the next couple of years, in payments that are increasingly untenable for the company to make unless it resorts to substitutions and shuffling of assets, capital, and debt between subsidiaries. (I do note that you do not dispute the fact that these tactics have indeed occurred). Like I said, I understand that you have duties to your corporation, but hopefully this doesn’t also include intimidatory efforts to silence legitimate criticism of iHeartMedia and its corporate financial practices.

Goldberg responded within minutes, and suddenly the dispute was about minutae, not the elephant in the corporate boardroom: “neither lawsuit was triggered by notices of default. We sued the lenders prior to any notices of default being issued — and a judge issued a temporary restraining order at the time that those notices of default were not in effect.” This made no sense, so I provided Ms. Goldberg with the facts:
1. The use of fiscal subsidiaries to engage in what another blogger has called “hiding the pickle” with iHeart’s debt-load took place on December 3, 2015.
2. iHeart filed an 8K form with the SEC on March 8, 2016 clearly stating that it “received Notices of Default. . .from the holders of at least 25% of the outstanding principal amount of four of the Company’s outstanding series of Priority Guarantee Notes (the “Holders”)” on March 7, 2016.”
3. That same day (March 7), iHeart filed a lawsuit in a friendly San Antonio, Texas court (home of the comglomerate’s corporate headquarters) to prevent the default from being exercised. Two days after filing the suit (March 9), the judge assigned to the case issued a temporary restraining order against iHeart’s creditors, effectively freezing the clock on the default process until a trial could take place.
As reported, iHeart won its case, thereby voiding the notice of default, and now seeks hundreds of millions of dollars in damages from the creditors that took the company to the brink.
Goldberg made one more play trying to “correct” the timeline — “we filed the lawsuit and then they sent notices of default.” The fact of the matter is that both parties initiated proceedings against each other on the same day (March 7); who filed first comes down to a matter of hours and is not rectifiable with publicly-available information (the details of iHeart’s legal proceedings in Texas have been sealed).
That said, had iHeart filed its lawsuit before it received a notice of default, it would have been dismissed as unduly preemptive. Without being formally notified by its creditors that they plan to call in their debts, there would have been nothing for the company to dispute. So, as I told Ms. Goldberg, “unless calendars began working backwards this year, the timeline as alleged makes no sense.
“But more importantly, what does that have to do with the meat of the story itself as written?” There was no further response.
Obviously, criticism of iHeartMedia’s financial situation and machinations is of utmost importance to the company, if it is surveilling the news-flow about it so closely and is so quick to pounce on negative coverage, regardless of who publishes it (to be a fly on the wall at the AP, Bloomberg, and NY Post!). This would seem to suggest that my analysis hits a little too close to home for those in the C-suite.
Just last week, the company reported its second-quarter 2016 results: $253 million in operating income on more than $1.6 billion in gross revenues, signifying a drop of nearly 40% in income from the same time last year. This actually inched up the comglomerate’s leveraged position, which now stands well over six times debt-to-earnings.
Even so, all of this leads me to ask the same question as last week: has the legal drama(s) condensed the timetable for iHeartMedia to constructively deal with its debt — and if so by how much and using what mechanisms? Barring a near-miraculous acquisition by a capital-rich tech company such as Apple, Google, or Amazon, the shell-game currently underway will only work so long. In the interim, the company has nobody to blame but itself for its own bad news.