The deed is done. Facing default on Friday, Cumulus has filed a prepackaged Chapter 11 bankruptcy. If I followed the details, the existing CMLS stock is cancelled with no residual value – that wipes out the Dickey Brothers and the guy who bought out Citadel on the cheap.
About $1 billion of the existing debt will be converted to a new Cumulus Stock which will meet the requirements for re-listing on NASDAQ. By shedding $1 billion in debt, they aren’t so trapped into diverting all the cash flow into paying interest. It also gives options to cancel contracts and retiree promises.
At the time Mary Berner was brought in as the CEO of Cumulus, there was speculation she was brought in to handle the bankruptcy, having done the same thing for Reader’s Digest.
Of course, don’t forget lenders have given Mr Dickey a blank check for acquisitions, so it is not impossible he might try to take control back.
Tom Taylor’s Friday newsletter indicates this is not a prepackaged bankruptcy and the chance for the proposed restructuring may fall apart as the junior creditors are being stiffed by the senior creditors.
One difference between bankruptcy and mere reorganization is that the bankrupt company can terminate non-essential contracts and claw back golden parachutes. The non-secured creditors are playing hardball. Apparently, Cumulus had a deal with Lew Dickey to rent a tower in Toledo, the Dickey family’s original home town. Public companies having side deals with the CEO is something that the SEC watches closely, to make sure they are “arm’s length” transactions.