Audacy Unlikely To Pursue New Asset Sales Amid Chapter 11, Brokers Say. | Story
Don’t look for a new round of asset sales from Audacy as it works to shave $1.6 billion of debt in bankruptcy court. The company has sold select non-strategic assets over the past two years and lined up a batch of “projected asset sales” that were made public just before it filed for chapter 11 protection (see separate story). “While there may be more asset sales that were in the pipeline before the filing, I do not expect a new round of sales at least until they exit the process,” broker Greg Guy of Tideline Partners says. “There are good buyers who would certainly have interest in Audacy assets, but I do not believe that station sales are going to be a meaningful source of capital as they navigate this process. The market is active but shallow with multiples in the mid-single digits.”
Those low multiples are another reason Audacy may opt not to sell stations now. A sale wouldn’t be accretive to the company’s existing debt structure. “They’re not able to sell because they need a certain multiple, or else it’s going to dilute their equity,” Guy explains. When cash flow decreases, as it did for Audacy and many broadcasters during the 2023 advertising downturn, it causes the leverage of big companies to increase. Selling assets at a multiple below their cash flow-to-debt ratio would put them in a bigger financial hole.
Once Audacy emerges with a drastically reduced debt load, it opens up some strategic opportunities. “It’s hard to forecast exactly what they might have in mind. There are certainly assets within companies that are under underutilized or underperforming that can be monetized based on stick value,” Guy says.
Other brokers echo the belief that any asset sales will have to wait. “There’s no asset sales in the process,” said a broker speaking under the condition of anonymity. “I don’t think it’s even being considered, because they’re just trying to get through this bankruptcy. And the company is going to have new owners.”
Déjà Vu All Over Again
Brokers believe it will generally be business as usual for Audacy during the restructuring process. “The industry has been through this before with Cumulus and iHeart and I would expect a similar path/reaction to the Audacy bankruptcy,” says Guy.
And they are in agreement with analysts that the basis for Audacy’s financial problems stems from the company’s $2.4 billion purchase of CBS Radio in 2017, which added around $1.5 billion in debt. The debt service issues brought on by the acquisition were compounded by COVID, inflation, and overall industry headwinds.
“That deal never had a chance with that debt load,” said the anonymous broker. “At some point, the debt was going to have to be restructured, but COVID accelerated everything. It’s just happening sooner rather than later.”
No Free Pass
As part of an agreement with its lenders, Audacy will cut its outstanding debt from $1.9 billion to $350 million and the debtholders will receive an ownership stake in the reorganized company. But erasing approximately 80% of its debt won’t give the reorganized company a free pass. Brokers say Audacy will be under considerable pressure post-bankruptcy to hit their numbers in 2024 and 2025.
“This company has a tremendous amount of capital expenditures and corporate overhead,” says the anonymous broker. “You should look for a slim down of Audacy – or someone to come in and slim this thing down.”
So far, it’s been relatively smooth sailing in court for Audacy. The company has entered into a restructuring agreement with a supermajority of its debtholders and the U.S. Bankruptcy Court has approved all of the broadcaster’s “first day motions,” including giving it access to $57 million in financing from some of its existing lenders. But it’s not known how things will progress from here.
“Sometimes these things can be friendly to gain cooperation of management and the debtors and then, all of a sudden, the lenders show their real colors,” an anonymous broker said. When LBI Media emerged from chapter 11 in an October 2019 debt-for-equity swap, the company immediately appointed Peter Markham as CEO, replacing founder Lenard Lieberman. “It really depends on the tenor of the discussions between a debtor and the new owners and the bank,” the broker said.
Audacy’s bankruptcy didn’t come as a surprise to the industry, especially given the protracted negotiations with its lenders. The prospect of a bankruptcy filing has been on the table since May 2023, when the company added “going concern” language to its annual financial report.
“I do not expect any real impact inside the industry,” Guy says. “The bigger potential impact will be from the perception outside of the industry from investors, outside lenders and consumers.”