- The Washington Times - Sunday, December 20, 2009

Citadel Broadcasting Corp., the nation’s third-largest radio broadcasting company, filed for Chapter 11 bankruptcy protection on Sunday in an effort to restructure its hefty debt load as it continues to face declining advertising revenue.

Citadel owns and operates 224 radio stations in all major markets and produces news and talk-radio programing for 4,000 station affiliates and 8,500 program affiliates. Citadel’s WABC is home to several syndicated hosts, including Don Imus, Rush Limbaugh, Joe Scarborough and Mark Levin.

In documents filed in U.S. Bankruptcy Court for the Southern District of New York, Las Vegas-based Citadel listed total assets at Oct. 30 of $1.4 billion and total debt of $2.46 billion. The company said in a statement it has reached an agreement with more than 60 percent of its lenders on a deal that would erase about $1.4 billion of debt.

“Our business will continue as usual and the company will work to emerge from the restructuring process as quickly as possible,” CEO Farid Suleman said in a statement. Citadel has retained turnaround specialist Alvarez & Marsal North America LLC as its restructuring adviser.

Much of the company’s debt burden stems from its $2.7 billion purchase of ABC Radio from the Walt Disney Co. in 2007. Citadel also has been hurt over the past couple of years by declining advertising revenue in nearly all major markets as many listeners abandoned the format for prerecorded music and the commercial-free satellite radio offerings of Sirius XM. The economic slump further cut ad spending across all media, including newspapers and television, and also has affected rivals, including No. 1 U.S. radio broadcaster Clear Channel.

In May, Citadel hired a financial adviser to help it assess its options including refinancing or restructuring its debt.

In documents filed with regulators in November, Citadel portrayed a gloomy picture in which it said revenue was expected to continue its decline through the end of 2009. The company said lower ad sales in its radio markets drove net revenue down more than 18 percent for the nine months ended Sept. 30 from the same period the year before. It warned it expected to be unable to meet debt requirements by the middle of January 2010 because of current economic conditions and tight capital markets.

Neil Begley, a senior vice president at credit ratings agency Moody’s Investors Service, also cautioned in a Dec. 11 report that the economy, ad spending declines, rising debt and looming loan covenant requirements had left Citadel with an “unsustainable capital structure.”

Under terms of its bankruptcy reorganization, the company said its $2.1 billion in secured credit will be converted to a new term loan of just $762.5 million. Those secured creditors will get a share of the new loan and 90 percent of the new common stock in the reorganized company.

Holders of unsecured claims and other creditors may choose to receive 5 percent of their claim in cash, up to $2 million, or 10 percent of their claim in the form of new stock. Creditors of some of its largest unsecured claims are JPMorgan Chase Bank NA, whose claim was listed in the filing as “unknown”; Wilmington Trust Co., with a $49.2 million claim; and the Walt Disney Co., with an $11.2 million claim.

Such debt restructuring deals often wipe out shareholders completely.

The company’s largest shareholder, with a nearly 29 percent stake, is private equity firm Forstmann Little & Co., which acquired a $2 billion stake in Citadel in January 2001 through a leveraged buyout. Documents show the company owns about 76 million shares of Citadel’s 265.8 million shares outstanding.

Forstmann Little could not be reached for comment Sunday afternoon.

Citadel’s remaining common stock is owned by 1.1 million shareholders, bankruptcy documents said. The stock, which traded in the $10 range in 2007, has declined steadily in the past two years, falling as low as a penny earlier this month.

The restructuring will be completed using more than $36 million of cash on hand and all cash flow from operations, which will be more than sufficient to fund operations during the process, the company said. Citadel said it will ask bankruptcy court permission to continue its operations without interruption, including authorization to continue paying employee wages and salaries, and honoring certain customer contracts and programs.

The company said its board approved the bankruptcy protection filing on Dec. 18.

Kirkland & Ellis LLP is acting as general bankruptcy counsel, and Lazard Freres & Co. LLC is acting as financial adviser.

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