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At a meeting Wednesday, PJT Partners, Jones Day and principal members of the term loan and PGN noteholder cooperation agreement group presented a restructuring proposal to iHeartMedia, its private-equity sponsors and the Ducera/APKS three-member term loan group. The three-member Ducera/APKS term loan group had been in private discussions with the company between May and July.

As reported Wednesday morning, this is the first time the two term loan creditor groups have met with each other and also the first time the company has met with the PJT/Jones Day creditor constituency. The company has, however, previously met with the Ducera/APKS creditor constituency as well as advisors from both groups.

Meanwhile, advisors to a group of the company’s 14% unsecured noteholders, GLC Advisors and Gibson Dunn, have been restricted for more than a week in order to perform their own due diligence. None of the 14% noteholders in the group or their advisors were present at Wednesday's meeting.

The proposal presented by PJT and Jones Day, according to sources, contemplates handing a majority of iHeart and Clear Channel Outdoor equity to iHeart’s term loan lenders and PGN noteholders in a taxable transaction that would cut iHeartMedia’s debt load to approximately $6 billion. The Clear Channel Outdoor capital structure would remain in place, sources say. This proposed transaction would separate the businesses, but the spinoff contemplated would be taxable, unlike the spinoffs contemplated in the Ducera/APKS proposals disclosed in July and in the company’s outstanding exchange offers.

Although it would be a taxable transaction, advisors to the PJT/Jones Day holdout group said at the meeting that they believe their proposed structure would minimize the risk of a large taxable gain, sources report. iHeart disclosed on Sept. 29 that it estimates, based on certain assumptions, that a “taxable disposition of all of iHeartMedia Inc.’s interest in Clear Channel Outdoor Holdings, Inc. would give rise to taxable gain in excess of $3.7 billion.”

While term loan lenders and PGN noteholders would own a majority of iHeart and Outdoor equity under the proposal PJT and Jones Day presented Wednesday, there would also be a remaining pool of equity value available for iHeart’s junior creditors, sponsors Bain Capital and Thomas H. Lee Partners and other shareholders including the public shareholders, the sources say. While the amount of that equity value pool is expected to increase in order to reach a consensus among the company’s creditors and shareholders, sources say that the PJT and Jones Day proposal includes a pool of value for those constituents that would total approximately $300 million.

There was no guarantee given at the meeting indicating that the company is willing to engage on the PJT/Jones Day proposal, sources say. In addition, the holdout group’s proposal contemplates a consensual transaction that would require the participation of the company’s existing creditors, including those not currently involved in negotiations, according to sources.

The company’s capital structure as of June 30 is shown below.
 

Both the Ducera/APKS proposals from earlier this year and Wednesday’s PJT/Jones Day proposal seek to separate the iHeart and Outdoor businesses, allowing the company to reduce leverage at iHeart while lowering the cost of capital at Clear Channel, according to sources. Both creditor group proposals would also hand the company’s sponsors less value than they would receive under the company’s outstanding exchange offers.

While the PJT/Jones Day proposal would take value from the sponsors through transferring majority equity ownership to the term loan lenders and PGN noteholders (and consequently open up the risk of a taxable gain), the Ducera/APKS structure would keep majority equity control with the existing shareholders (and eliminate the risk of a taxable gain) but “reduces value leakage to existing equity holders to the benefit of creditors and prevents Sponsors from monetizing value until HoldCo debt is repaid,” according to Ducera’s July 12 presentation.