The continuing slump in radio advertising has lenders breathing down the necks of some debt-burdened broadcasters.
Weak revenue is triggering loan clauses about their debt-to-earnings ratios. Crossing those limits forces companies to renegotiate terms, often resulting in higher interest or other penalties.
Citadel Broadcasting Inc., which has renegotiated its agreement with creditors twice in the last year, got a waiver for its leverage requirements through the end of 2009. But the company skipped a $2 million interest payment on its subordinated debt due Aug. 15 and is negotiating with senior debtholders about “what the next step should be,” says Citadel chief executive Farid Suleman. Mr. Suleman says the company might not be able to meet conditions that kick in next January. “All options are on the table,” including prepackage bankruptcy, debt restructuring, and another amendment to the company’s credit agreement.
Citadel, which has $27.8 million in cash and more than $2 billion in debt, also has the option of making its payment by Sept. 15 without triggering a default.
This year, as overall advertising spending drops 10.6%, ad spending on radio is projected to fall 14.4% to $16.4 billion, according to the Publicis Group’s Zenith-Optimedia. Zenith estimates TV advertising will slip 8% this year to $53.3 million, and the Internet will grow by 13%, to $22 billion. Radio advertising has gotten a boost thanks to the “cash for clunkers” trade-in program, but the radio industry is expected to lag any recovery, as radio is an old medium and there are audience-measurement issues. Cheap competition is also drawing advertisers elsewhere. Kathy McLaughlin, executive vice president of Corona Del Marmedia planning and buying firm Mediaspot Inc., says TV stations regularly call her, offering to match the price per listener that her clients pay for radio.
Compared with other slumps, “this decline has been so much greater,” says Jeff Smulyan, chief executive of Emmis Communications Corp., an Indianapolis-based company with 22 radio stations. “In a normal recession, if you re down 5%-6%, that’s a lot.” Emmis recently had to renegotiate agreements with lenders because of declining revenue.
Atlanta-based Cumulus Media Inc., with 314 stations, renegotiated agreements with lenders at the end of June. Both it and Emmis got leverage ratios suspended in exchange for tighter restrictions such as prepaying excess cash to their borrowers.
One of the biggest radio-station owners in the country, Clear Channel Communications — struggling with about $20 billion of debt following a leveraged buyout last year — just completed a tender offer for debt totaling $412 million.
Clear Channel, owned by CC Media Holdings Inc., will just squeak by its covenant requirements this year.
The San Antonio-based company, which owns about 800 stations and Premiere Radio Networks, the country’s biggest syndicator, declined to comment. [source]