iHeartMedia subsidiary iHeartCommunications reduced the maturity date of much of its debt by three years and reduced the amount of its long-term debt by $440 million.
In November, the company's debt holders had the opportunity to swap existing debt for new debt at a higher rate — and about $4.8 billion, or 92.2%, of them participated in the exchange offer that ended on December 18. The end result is that the “vast majority” of debt maturities have been extended by three years and annual cash interest payments are expected to remain “relatively flat”, according to a press release on Monday (23 December). release.
Investors welcomed the financial breather provided by the exchange offer. Shares of iHeartMedia rose 9.6% to $2.06 in afternoon trading after rising as much as 15.7% to $2.175 earlier in the day. iHeartMedia's stock price is down 22.7% year-to-date.
Ratings agency S&P Global called the debt restructuring “tantamount to bankruptcy” because “lenders will receive less than originally promised without adequate compensation.” Although the new debt carries a higher interest rate, S&P believes that “the rates are well below what the company would have to pay for new capital under current market conditions and what an issuer with a similar profile would have to pay of risk to raise new capital.”
The agency downgraded iHeartCommunications to 'SD' (selective default) from 'CC' and lowered the issue-level rating on iHeartCommunications' senior secured and unsecured debt to 'D' from 'CC'. That said, S&P Global admitted that the swap was beneficial because without the restructuring “there was a realistic possibility of contractual default.”
During an earnings call on Nov. 7, iHeartMedia CFO Rich Bressler said the swap would help the company's net leverage, which is the ratio of long-term debt (less unrestricted cash) to earnings before interest, taxes, depreciation and amortization. iHeartMedia's net leverage is currently at 7.2, and Bressler said he expected that number to decline to “about 5.5” by the end of 2025 and further improve to “about 3.2” by end of 2028.
