Just days ahead of potentially defaulting on one of its loans, Cumulus Media has filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code to restructure the company’s nearly $2 billion of debt. While details are scarce, the company says it’s entered into what’s known as a Restructuring Support Agreement (RSA) with a group of lenders that hold roughly 69% of the company’s term loan. The agreement will reduce its debt load by more than $1 billion.
Under its current capital structure, Cumulus owes $1.729 billion in principal on a group of term loans in addition to another $610 million in senior unsecured notes.
On November 1, Cumulus decided not to make a $23.6 million loan payment, triggering a 30-day grace period built into its 2011 loan agreement. Since then the company has continued to work with a group of outside advisors and negotiate with both of its creditor groups to restructure its heavy debt load. CEO Mary Berner has long said all options are on the table to restructure its balance sheet. Those scenarios included an out-of-court, debt-for-equity swap with debtholders and a pre-packaged Chapter 11 bankruptcy filing, known in financial circles as a “pre-pack.” On Wednesday the company said its chose the court-supervised Chapter 11 process to remove its financial constraints, which will give it the flexibility to make investments to strengthen competitiveness and drive growth.
The company has said all along that it was looking for a solution that wouldn’t disrupt the progress it has made in improving ratings at its station group and growing revenue. Now it says it expects all operations, programming and sales to continue “as normal” during the restructuring process. It says it has “ample cash on hand,” which when combined with revenue from its radio station group and network operations, will keep the business running during the restructure. That means the company won’t have to seek debtor-in-possession financing.
As of Sept. 30, Cumulus had $69.4 million in cash on hand, according to its quarterly filing with the Securities and Exchange Commission.
Since replacing former CEO Lew Dickey more than two years ago, Berner has orchestrated a multi-pronged effort to turn the company around by focusing on culture change and building a stronger operational foundation. Since then station ratings have improved and the company reported increased revenue and cash flow for a second-straight quarter in Q3. Employee turnaround has slowed and a series of employee surveys showed workers were more satisfied and motivated. “That turnaround has not only been successful but is continuing,” Berner said in a statement on Wednesday. “However, as we have noted consistently, the debt overhang left by previous years of underperformance remains a significant financial challenge that we must overcome for our operational turnaround to proceed.”
Berner called the difficult decision to file chapter 11 “a critical step forward” for the company. “We will use this restructuring process to relieve the financial constraints on our continued progress, allowing us to focus our resources on investing in our business and people to strengthen our competitiveness and ultimately drive growth,” she said. “We have ample cash to support our operations and service our advertisers, vendors and affiliates during this period, and we look forward to becoming an even stronger partner to all of them when we complete this important phase of our turnaround strategy.”
Berner also thanked Cumulus employees, who have had to live with uncertainty and persistent rumors for months, for their “tremendous efforts” throughout the turnaround period and for “continuing to be the true force driving our success.”