What we can tell you about the iHeart battle with bondholders is what The San Antonio New Express has reported on what went on in court between the lawyers this week. The paper says this all comes down to the definition of an investment. The two sides are in court to get a ruling on whether iHeart’s transfer of 100,000 shares of Clear Channel Outdoor to a subsidiary called Broader Media was proper.
The paper reports that iHeartMedia lawyer Kevin Huff told District Judge Cathleen Stryker that the transfer was proper because it fits the definition of “investment” in its debt agreements. “Investment has meaning beyond a profit motive. This was a permitted investment because the company wanted to issue new debt secured by the transferred shares to buy back older, expiring debt trading at a discounted value. That would reduce company debt and interest expense. When a company can save money, profits go up. So there is a profit motive.”
Huff brought up similar transactions made in 2008 and 2009 by moving cash into subsidiaries designed to buy company debt at a discount. “No one threatened notices of default then. The “investment” definition used by iHeartMedia for the bonds under dispute are common. If iHeart is in default, then many, many companies would find themselves in default.”
Lawyers representing the bondholders disagree. The paper reports bondholder attorney Bruce Bennett told Stryker, “One indenture cannot be used to interpret another agreement. They moved the shares to have more flexibility. The Broader Media unit the shares were transferred to exists only to issue new debt not to make profits. A company would have to have at least a plan so that an investor would get a return. It’s just not there.
Bloomberg is reporting that iHeartRadio President Darren Davis testified on the company’s behalf yesterday. Davis told the judge this “whisper campaign,” being done by certain senior lenders is starting to hamper operations “It’s disrupting our operating business every day.” Davis told the judge the company’s line of credit was recently reduced from $1.5 million to $50,000, hampering its ability to quickly respond to market opportunities. And two of its largest manufacturing partners, who offer iHeartRadio as an integrated feature of products like televisions and cars, also claim to be very concerned about sticking with a company rumored to be in financial trouble, Davis said, according to Bloomberg.
The case is expected to last about a week.