Bankruptcy Cloud Looms Over TV Owners

By Harry A. Jessell

Plummeting revenue and cash flow will force 80%-90% of radio and TV companies to renegotiate loans with their bankers this year as they default on the terms of their original loan agreements, predicted Mike Andres of BIA Capital Strategies. And that was the good news out of the NAB panel Monday on “restructuring in a changing financial climate.”

The bad news is that the financial picture for some broadcasters is so gloomy that they may end up in bankruptcy this year or next.

David Kuney, a bankruptcy lawyer at Sidley Austin, at one point said he anticipates broadcast bankruptcies in 2009 and 2010 to match the “explosion” of bankruptcies among retailers in 2008.

But he later backed off that dire prediction. The similarity between broadcasting and retailing is there, and a lot of broadcasters are in need of financial restructuring, he said. But he couldn’t say how many would follow the retailers into bankruptcy. “One thing I’ve learned about bankruptcy is that nobody knows what is going to happen next.”

The other panelists thought that more broadcast companies would seek protection under the bankruptcy code, but that it would be far from an “explosion.”

“Some may be too far gone,” said former LIN Television CEO Gary Chapman, now an industry consultant. “I don’t think there will be a lot of bankruptcies. It will not be the rule, but the exception.”

Andres said that he expects that station groups that can’t renegotiate loans will settle on debt-for-equity swaps before succumbing to “flat-out bankruptcies.”

Five percent of commercial TV stations are in bankruptcy, said John Feore, a communications attorney at Dow Lohnes, citing Tribune, Pappas, and Equity Media, among others. And, by one count, he said, 260 radio stations have gone dark over the past 15 months due to financial troubles. “Obviously, the lenders and broadcasters have to talk or these numbers are going to accelerate.”

Chapman said the lenders are generally willing to restructure debt under new terms. “What they really want … is their money back. They really don’t want the assets.”

Tom Davidson, a communications attorney at Akin Gump Strauss Hauer & Feld, said it was important for troubled companies to get the conversation going with lenders and creditors. “They may very well be able to obviate a formal bankruptcy proceeding,” he said. “To the extent that they wait until the 11th hour, sometimes there aren’t as many options available to them.”

Andres raised another red flag. When a broadcaster gets into financial trouble, third parties may buy the debt, he said. “The paper ends up in unfriendly hands and they take a harder stance than the banks have historically.”

He added, however, that, at this point, there doesn’t seem to be a “real active market in buying paper” due to the difficulty in doing it.

And Chapman warned that some broadcasters that have renegotiated their loans may have to do it again. “They look at their first quarter returns and say, Wow, this is awful: national is down 30[%], local is down 20, and EBITDA is down 40. I’m not going to make that. So I go back to the bank trying to get a new understanding on the loan.”