Citadel sees covenant difficulties in 2010


Citadel Broadcasting has reworked the terms of its senior credit and term facility to give it some breathing room in 2009. But the company is already warning of potential covenant compliance problems in 2010. In the event of a reorganization, Citadel says its shareholders could be diluted or wiped-out.

In its annual 10-K filing with the SEC, Citadel reported that it had signed a new amendment to its credit agreement on March 26th. It suspends some financial covenants for all of 2009, but also imposed some new monthly covenants. The amended agreement also required Citadel to have $150 million of available cash as of January 15, 2010. Also, if at any time the company has more than $30 million in cash on hand, all of the excess must be put into a collateral account for the benefit of its lenders. Other terms include a reduction in leverage over the course of next year, from 7.75 times at the end of Q1 to 6.75 times by the end of 2010.

“Based on the current economic and capital markets and the continuing decline in radio revenues, it will be difficult for the Company to meet these requirements in 2010, especially those commencing on January 15, 2010. If we fail to do so, we will be in default under our Senior Credit and Term Facility and would also be in default under the terms of our convertible subordinated notes. Should we default, our indebtedness may be accelerated, we will likely not be able to satisfy these obligations, and we may need to either obtain an additional amendment or waiver from lenders or reorganize our capital structure.

In the event we default on our Senior Credit and Term Facility, the Company may be required to reorganize its debt and equity structure, which could result in the interests of our public shareholders and debt holders being diluted or eliminated,” Citadel said in its SEC filing.

As of December 31, 2008, the balance outstanding under Citadel’s senior credit and term facility was $2.01 billion. The company said it was in compliance with all covenants as of that date.

Here’s another “risk factor” that Citadel employees, ex-employees and shareholders may find interesting:

“Our business depends upon the continued efforts, abilities and expertise of our executive officers, primarily our chairman and chief executive officer, Farid Suleman. We believe that the unique combination of skills and experience possessed by Mr. Suleman would be difficult to replace, and his loss could have a material adverse effect on the Company, including impairing our ability to execute our business strategy. Mr. Suleman does not have a formal employment agreement with the Company and is not contractually bound to provide his services to the Company for any specific period of time.”

RBR/TVBR observation: Citadel has not yet filed the proxy for its annual shareholders meeting, but under the staggered terms of its board of directors CEO Farid Suleman will be up for election this year. Shareholders may have something to say about his performance.

Withholding votes from Suleman would not deny him a seat on the board of directors, since there is no indication that anyone is running a competing slate. But if a large group of shareholders check “withhold” on their proxies it would deliver a message that the owners of the company want a new CEO and a new direction for Citadel.

Editor note: What do you think the board should do about Suleman let us know at [email protected]