Among the music companies listed as creditors on the iHeart docket are Nielsen (owed $20 million); SoundExchange ($6.4 million); Warner Music Group ($3.9 million); Universal Music Group ($1.3 million); and Spotify ($2.1 million). Performance rights organizations ASCAP and BMI are each owed slightly over $1.4 million while Global Music Rights is looking at a $2 million debt.
While dramatic, the filing is not likely to have much noticeable effect on the company’s day-to-day. “They’re not shutting down. They’re going to pay their bills,” Crystall says. “If you were listening to iHeartRadio, or going to iHeart concerts, you will not even know the difference.”
The company, owned by Thomas H. Lee Partners and Bain Capital, has been in negotiations for nearly a year with its primary debtholders, led by Franklin Resources Group. In public term sheets, the equity holders offered a pre-packaged bankruptcy under which the creditors would get 89.5% of the equity. The equity holders would keep 5.25% of the company. The creditors’ counteroffer sought a higher stake in the company — 94.75% — while offering the equity holders nothing.
On Feb. 1, iHeart announced that it had skipped a $106 million coupon payment on debt that matures in 2021. That set up a 30-day “grace period” before triggering a default, which forced the company to declare bankruptcy.
Late last month, John Malone’s Liberty Media made a last-minute offer to take a 40% stake in the reorganized company for $1.1 billion. Liberty owns a majority stake in Sirius XM, and also has a sizable stake in Pandora, creating the possibility of synergies between the companies. The offer struck observers as a lowball price, and it came too late to avert bankruptcy, but Liberty may yet play a role in ongoing talks with the creditor group.
The radio business has struggled with flat advertising revenues over the last decade, as ad dollars have migrated to Google and Facebook. iHeart has sought to diversify its business with its digital offerings and its concert business. Once it emerges from bankruptcy, analysts say it has a chance to use its substantial cash flow to reinvest in the business, rather than make exorbitant interest payments.
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