All radio eyes are on Cumulus this week as a 30-day deadline approaches before the company possibly goes into an “Event of Default.” Friday is the end of the 30 days that was set into motion on November 1 when the company decided not to make a $23.6 million interest payment on 7.75% senior notes due in 2019. That was followed up by Cumulus disclosing a previously confidential term sheet that includes pre-packaged Chapter 11 details, and later in the month, being delisted by NASDAQ. Although Friday is the 30-day deadline, it is possible we could hear that the company and its lenders are negotiating to fix the debt issue, therefore delaying an “event of default.”
An “Event of Default” means lenders can demand full repayment of the entire loan sooner than it was originally due. It also enables the lenders to seize any collateral that has been pledged and sell it to recoup the loan. The decision not to make the interest payment was made “in support of the Company’s efforts to develop and implement a restructuring that will allow the Company to continue its operations.”
The term sheet filed with the SEC this month was being provided “as part of a proposed comprehensive restructuring transaction.” The company is also hopeful an out-of-court agreement can be made with lenders.
Under the plan, senior lenders, who are owed $1.72 billion, will receive $350 million plus cash on the company’s balance sheet to pay down part of the loan. The remaining amount will be reinstated. 98% of the bondholders would need to agree to the restructuring plan to complete the restructuring outside of bankruptcy court.
4 key points from the proposed restructure in the term sheet were:
– Bondholders will invest $350 million, the proceeds of which will be used to pay down the Term Loan.
– 100% of the $610 million of outstanding bonds will be converted into the common equity of Cumulus.
– The Term Loan interest rate will be increased to LIBOR + 6.0%.
– The company will use excess cash, as of the effective date of the restructuring, to pay down the Term Loan.
Negotiations are ongoing with creditors, however there is no indication that this proposal will be accepted or rejected. The SEC filing says the company will be restructured through either an out-of-court restructuring consistent with the terms and conditions described in the term sheet, or a voluntary pre-packaged Chapter 11 Bankruptcy.