It was one of the last mega-buyouts of 2008 before the financial markets’ meltdown, a corporate radio giant with some of Boston’s most prominent investors behind it — and a whopping $20 billion in debt.
Clear Channel Communications Inc., now iHeartMedia Inc., has for years been considered a troubled buyout. The San Antonio-based company now faces another in a series of showdowns over its debt. If the many stakeholders can’t agree on a refinancing plan that pushes out due dates for payments, and cuts interest costs, bankruptcy looms.
There’s a lot to lose in these talks, with lenders being asked to trade in old debts for new — and smaller — IOUs. Some might also get stock. But lead investorsBain Capital and Thomas H. Lee Partners, both of Boston, will make money, according to people with knowledge of the situation.
That’s because the firms hold not only $2.1 billion in equity in the deal, but also the second-biggest slice of debt. Even if the stock doesn’t do well, the debt investments will, those people said.
“There’s going to be some kind of restructuring,’’ said Scott Van den Bosch, a senior credit officer at Moody’s Investors Service Inc. who follows the company. IHeart is over-leveraged, he said, and “That’s not sustainable. We don’t think the company can grow into this capital structure.”
“If you could get leverage down and reduce interest expenses, that could allow the company additional time to improve results,’’ Van den Bosch said.
It’s been nearly a decade since the buyout was completed, a deal that came together under duress as the credit markets already were showing signs of stress. That’s longer than Bain and Lee generally like to own companies they acquire. But soon after they got into the radio business, the economy, and the company, began to stumble.
Advertising dollars, which today account for 54 percent of iHeart’s $6.3 billion in annual revenue, dried up. Something more transformative was happening, too — the way people listened to and shared music was changing rapidly. By the mid-2000s, Apple Inc.’s iTunes was well-established, and music-streaming sites like Pandora and Spotify were on the rise. Traditional radio lost much of its clout.
“In my eyes, radio is dead. It’s over. A lot of it is automation. Technology has changed it,’’ said Kurt St. Thomas, a disc jockey in the 1990s at the former WFNX, a popular alternative rock station based in Lynn. St. Thomas left the station before Phoenix Media sold WFNX to Clear Channel in 2012.
Today, WFNX’s FM signal, 101.7, is iHeart’s “The Bull,” touted as “new hit Country,” and four former ‘FNX employees work for the Globe’s streaming station, RadioBDC.
Radio may already have been headed for hard times because of changing technology, St. Thomas said, but Clear Channel and other corporate owners acted as “lighter fluid on the fire.”
Mark Fratrick, chief economist with the media research and consulting firm BIA/Kelsey, based in Chantilly, Va., said it’s easy to lament the halcyon days of radio, but station owners have had to face deep financial challenges. IHeart has been losing money for years.
“You have this incredible competition for listeners as well as for advertisers,’’ Fratrick said. “You couple that with the recession. Those two forces were profound and were happening at the same time.”
Meanwhile, iHeart has changed with the times, launching a streaming app for listeners and online access to its 855 US radio stations. It promotes live music events, and its billboard advertising business has rebounded since the recession.
Some analysts believe there’s a natural way to split the company, by selling its radio and billboard operations to different buyers. Such transactions could lead to gains for both stockholders and bondholders. But any exit plan, whether through a breakup or sale, can’t happen until the debt crunch gets sorted, analysts and people with knowledge of the company say.
The negotiations are complex, and investors are jockeying to be first in line to get their money under various scenarios. The big Boston hedge funds Highfields Capital Management and Abrams Capital both are large equity investors with seats on iHeart’s board. Franklin Resources Inc., a San Mateo, Calif.-based mutual fund company, is the largest bond holder, and it has wrangled with iHeart in talks in the past.
None are going to tread lightly.
“These are brass-knuckle types,’’ said George W. Tetler III, an attorney at Bowditch & Dewey in Worcester who has worked on complex bankruptcy cases in the past. He said the iHeart situation is unusual, mostly because of the way the financing was set up.
“There are innumerable layers of debt that have been part of this structure for quite a period of time,’’ Tetler said. The company also has been playing some creditors against others, he explained, as it looks to convert some portion of its debt into equity, making the biggest bondholders majority owners in a reorganization. “The conversations are being held in a very disputatious kind of way,’’ Tetler said.
Spokespeople for Bain, Lee, Highfields, Abrams and Franklin all declined to comment on the state of negotiations over the debt restructuring. But they all have a little more time to think about it. Last week, an April 28 deadline was pushed out to May 12.
Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.