You may recall Cumulus taking similar action back in November 2017, choosing not to make an interest payment of $23.6 million on 7.75% senior notes due 2019. At the end of that month Cumulus filed for Chapter 11 and is now in the middle of restructuring its debt.
On Thursday iHeartCommunications announced iHeart’s board has chosen not to make an interest payment of approximately $106 million that was due today on its outstanding Senior Notes due 2021.
That does not mean that iHeart doesn’t have the money to make the payment. It does mean there is now a 30-day grace period to make the interest payment before an event of default is triggered and this is part of the negotiations.
An “Event of Default” means lenders can demand full repayment of the entire loan sooner than it was originally due. An “Event of Default” also enables the lenders to seize any collateral that has been pledged and sell it to recoup the loan. iHeart has been attempting to restructure its $20 billion in debt and this could be part of the strategy to clean up the company’s balance sheet.
In the ongoing negotiations regarding iHeart’s debt, lenders proposed an out-of-court exchange offer with a stapled pre-packaged Chapter 11 plan of reorganization. iHeart came back with a counter-proposal this passed Tuesday. No deal has been reached and The Wall Street Journal is reportingthat the two sides still appear to be far apart.
While there will now be a 30-day grace period to make the interest payment, we could find out that iHeart, the lenders, and equity holders are negotiating to fix the debt issue, therefore delaying an “event of default.”
Or, as we’ve seen with Cumulus, it could lead to a Chapter 11 filing.
Analyst Lance Vitanza told The Wall Street Journal he’s glad iHeart skipped the interest payment. “iHeart needs to restructure its balance sheet and its senior creditors are clearly impaired. Making payments on account of junior debt—so close to a likely bankruptcy filing—would be in bad form.” The Journal is also reporting that iHeart and its largest creditors may be close to a deal. The paper is reporting that the two sides are attempting to hammer out a deal that would allow for iHeart to restructure through a prearranged bankruptcy filing.