Many industry-watchers have been fixated on the travails of Cumulus Media, which ousted its founding family earlier this year and replaced them with new management backed by the private-capital firms that now control the company. It hasn’t yet resulted in a massive turnaround for Cumulus stock, which is up about ten cents or so from its lowest low earlier this fall. Still, that values the country’s second largest radio conglomerate at a paltry $82 million and change — you can now pick up a few shares of Cumulus for a dollar and still have change left over for a gumball.
But Cumulus is not the only company now trading under a buck. There’s also Emmis Communications — the primary driver behind the NextRadio application and a major innovator in the HD Radio space — whose shares are now trading at just 62 cents, triggering a delisting warning from NASDAQ. Just three months ago, Emmis stock was worth $1.42 per share; a decade ago, the stock was worth 100 times more than it is today.
Hedge funds have been making increasing investments in the company in the last few months, potentially increasing the stock’s volatility. Even those who hold preferred shares of Emmis stock are also feeling the burn: the price of those shares have dwindled from north of $14 this past spring to just $2.22 (the “preferred” liquidation proce of EMMSP stock is $50).
Then, there is iHeartMedia — the most overleveraged of the radio “content discovery” companies in the broadcast industry. Its stock dropped below $1 several times last week, only to rebound to $1.10 at the close of trading last week. Back in January, iHeart stock was valued at more than $7.50.
iHeart struggles mightily with more than $21 billion dollars in debt, accrued by and large during its years as Clear Channel, engaged in a wholesale Mr. Creosote-like binge of radio station and network acquisitions. Now, the debt is coming due — with 2019 being a definitive year — and there’s no way the company’s current dynamics can stop it short of this cliff.
This is why iHeartMedia announced it would convert more than $2 billion of its debt into equity and attempt to pawn that off on its investors early next year. In simple terms, a debt/equity swap is a bet that those to whom iHeart owes money may be mollified by giving them shares in the company in exchange for forgiving that debt. In effect, that would turn 10% of iHeartMedia’s outstanding debt into equity investments — cool trick, no? Obviously, the market hasn’t reacted well to this, and with the Federal Reserve beginning the process of increasing overall interest rates for the first time in nearly 10 years, that will make all debts more expensive to carry (and finance).
At the same time, iHeart has announced a company-wide webinar on January 13 at which Chairman/CEO Bob Pittman and President/COO/CFO Rich Bressler will inform employees about “our plans for (2016) and beyond,” with many in the company now worrying whether or not this means a corporate reorganization (i.e., major layoffs) may be on the horizon. Last week, industry maven Tom Taylor quoted an anonymous “iHeart-watcher” who noted that “It’s striking how many market manager jobs are currently open. I wonder if they’re eventually going to a regional market manager system.” Of course, this might work reinstill some confidence in the market as the company makes its case to its creditors that they would be better off investing in the company than risk a default on what they’re owed before the decade is out.
As the market for content that falls under the rubric of “radio” continues to expand, and broadcasters continue to lack consensus on what their core values are beyond the pursuit of profit, it’s only logical that we can expect to see even more volatility in 2016. An expected influx in political advertising may provide an element of respite for the overleveraged dinosaurs, but it won’t make a dent in the core conundrum they face.
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