A reporter who has covered “financial distress, volatility and restructuring” for The Wall Street Journal since joining from Debtwire in July 2019 is sharing the news that, according to sources who have spoken with him, one of the nation’s largest audio content creation and distribution companies has reached an agreement with senior lenders that will give it the funds necessary to commence a voluntary Chapter 11 restructuring process.
When would this happen for Audacy Inc.? The WSJ’s Alexander Gladstone says an announcement is just weeks away. The bigger news? Ownership of the company founded by Joseph Field as Entercom more than 55 years ago and today run by his son, Chairman and President/CEO David Field, would be owned by Audacy’s lenders.
Should this transpire, it would effectively end majority ownership in a company created by the elder Field in October 1968 with the purchase of radio stations in San Francisco, Houston and Minneapolis.
An Audacy spokesperson declined to comment on the report when contacted by RBR+TVBR on Wednesday morning. As reported by WSJ, citing undisclosed sources, Audacy’s senior lenders are working with the storied law firm of Gibson Dunn & Crutcher as a group of second lien bondholders is engaged with another iconic law firm: Akin Gump Strauss Hauer & Feld. Audacy has been working with restructuring adviser PJT Partners and lawyers from Latham & Watkins, WSJ reports.
As the Radio + Television Business Report has been reporting for the last several months, the precarious fiscal health of Audacy Inc. has become one of the broadcast industry’s most widely watched stories. On word of the WSJ report, Audacy shares — presently trading on an Over The Counter market following a 1-for-30 reverse stock split designed to regain compliance with the NYSE — fell 11.6%. Thus, as of 9:51am Eastern AUD was priced at just $0.1874.
The most recent update provided to the U.S. Securities and Exchange Commission from Audacy’s EVP/General Counsel, Andrew Sutor, shared how it has gained more time to make interest payments associated with its credit facility without a fear of default. That update shed new light on just how demanding Audacy’s lenders had become, with financial security guarantees from Audacy a new possibility.
Audacy’s financial stress is tied, in part, to its Credit Facility Agreement, which the company agreed to on October 17, 2016. On December 11, 2023, a 12th amendment was agreed upon between the company and its lenders. This extended the grace period for its past-due payments associated with its credit agreement to 68 calendar days — effectively Saturday, February 17, 2024.
This date came with a caveat, however: if by December 15, 2023 “required lenders” who are owed the most from Audacy under the credit facility had not received “a substantially final form of agreement with respect to a consensual transaction relating to Audacy’s funded indebtedness” satisfactory to these lenders, the grace period would expire after 45 calendar days.
This would have made Thursday, January 25, a key deadline date putting more pressure on Audacy to satisfy this segment of its overdue payments to lenders.
Subject to these grace periods are three series of interest payments:
- $17 million, originally due on October 31
- $785,592, originally due on November 8
- $1.125 million, which was scheduled for payment on December 28
While the credit facility payments are being worked out, Audacy is also coming to grips with how to successfully avoid a default for failure to pay interest on its 2027 Notes and on its 2029 notes. For the 2027 notes, an early February 2024 due date lurks. The 2029 notes due-date would not be until until March 2024. And, those dates also come with a debtholder caveat that they get a funded indebtedness guarantee.
How much is owed on the Notes? Audacy must come up with interest payments of $15 million on the 2027 Notes, originally due November 1; and $18 million on the 2029 Notes, originally due September 30.
Thus, Audacy needs to pay $50.79 million in overdue interest payments, with the principal amount on its debt untouched, in addition to $1.125 million that was to be paid in late December 2023. As of September 30, Audacy reported cash, cash equivalents and restricted cash of $57.38 million.
Meanwhile, on November 29 the role of Letter of Credit and Swing Line Lender holder for Audacy Inc., with respect to its credit facility, shifted from JPMorgan Chase Bank N.A. to Wilmington Savings Fund Society. JPMorgan Chase resigned from the role, making Wilmington SFS the Administrative Agent and Collateral Agent under Audacy’s credit facility. A Letter of Credit is defined as “a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. If the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.”
The upcoming submission of Audacy’s fourth quarter 2023 earnings report likely won’t help matters between the company and its debtholders. In prepared comments from David Field made with the release of Q3 2023 earnings data, the Audacy leader shared that Q4 was pacing down 9% on an as-reported basis and down 4% on a same-station, ex-political basis. “We expect Q4 total revenues to decline by high single digits and costs to decline by high single digits,” he said.
That statement was made one day after Audacy shared with the SEC that its Board of Directors would be expanding to nine members with the addition of Roger Meltzer.
There’s one clear reason why Meltzer was appointed to the board in early November. “Meltzer has substantial experience serving as a director of entities that considered potential alternatives regarding debt restructurings,” the company said in the SEC filing.
Indeed, Meltzer’s role with Audacy is as the head of a Special Review Committee — comprised of Meltzer and no one else — created upon his arrival to the board. “The Special Review Committee is vested with the authority to conduct or authorize reviews into any matters germane to the potential restructuring of the company as it deems appropriate,” Audacy said.
For Audacy’s C-Suite, the company is pointing to the most recent prepared comments from David Field as it navigates through its most difficult waters yet as a company. “We remain in constructive conversations with our lenders to recapitalize the company’s balance sheet to establish a strong financial footing and position the company to capitalize effectively on our growth opportunities,” he said in November. “Notwithstanding current challenges, Audacy has established a strong position as a scaled, leading multi-platform audio content and entertainment company distinguished by our exclusive premium content and top positions across the country’s largest markets. We salute our team for their strong work delivering solid growth against our key performance metrics and serving our listeners and customers with excellence.”
As Entercom, the Field family took advantage of rapid-fire growth of the radio industry fueled by the Telecommunications Act of 1996 by going public in January 1999. Some $186.3 million was expected to be raised through the IPO, designed to help pay down some $330 million in debt it had accrued through the end of 1998. However, revenues were soaring as the company grew, moving from $48.7 million in FY 1996 to $133 million in FY 1998. The IPO for Entercom came four months after David Field was promoted to President from the Chief Operating Officer role.
The IPO was a smashing success. Originally priced at $22.50 on the NYSE, the first day of trading saw an Opening Bell valuation of $30. At the closing bell, Entercom was at $30.75.
In a Radio & Records interview, Bishop Cheen, a top radio industry financial analyst of the day, commented, “It’s radio, and the closest stock to a tech stock is radio. And it’s the first radio IPO to come out of the blocks on the coattails of Infinity; the economics of radio
continue to look very strong; it has great sponsorship with Goldman Sachs; and [Chairman] Joe Field and his son, [Entercom President] David Field, have done an excellent
job building up this company, swapping stations in and out of all the right markets. It’s all of that.”
The IPO helped Entercom further grow, and in July 1999 agreed to purchase 43 of Sinclair
Broadcast Group‘s radio properties for a stunning $821.5 million. The growth would continue for Entercom, culminating in the transformative tax-free merger with CBS Radio engineered by David Field and longtime Chief Financial Officer Rich Schmaeling, a former LIN Media executive.
While the November 17, 2017 integration of CBS Radio properties and the arrival of a streaming portal, Radio.com, gave Entercom new growth possibilities, multiple challenges clouded the company. Ratings and revenue challenges at legacy CBS Radio station led David Field to put the blame on “neglected” assets that didn’t get what they needed from previous ownership. Today, many of the CBS Radio properties are being viewed as central to Audacy’s fiscal woes.
Today, it appears more than likely that Audacy will be entering its next chapter by the end of the second quarter of 2024. How that may, or may not, involve the Field family will likely be the new subject of chatter across a nervous radio broadcasting industry.
