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Cumulus wants to nix the WLUP/WKQX deal

M

MarkW

Star Participant
The Restructuring Term Sheet wants all claims owed to Merlin Media to be fully subordinate to all other bankruptcy claims and seeks no distributions or payments of any kind to Merlin Media.

In other words, Cumulus wants to completely walk away from the deal, free of charge (other than the LMA payments they've already made).

This means, going forward, it is possible that Merlin Media will have to resume operating the stations themselves and put them back on the market. That could be bad news for current employees.


The full Restructuring Term Sheet begins on page 94:
http://document.epiq11.com/document/getdocumentbycode/?docId=3220481&projectCode=CUI

Pay particular attention to page 97.
 
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Tom Taylor's newsletter today said that reference has to do with back LMA fees due to Merlin. So Merlin is an unsecured creditor, along with about 50 other companies. Neither he nor RadioInk, who also showed Merlin as an unsecured creditor, mentioned completely walking away from the deal. The only amount listed was the LMA fees, not the sale price. I guess the question is the actual status of the deal at the time of the bankruptcy.

However, you'd be correct that under the terms of a Chap 11, the company could walk away from all previous agreements, but that would be subject to the approval of the court. I saw in the restructure term sheet that the company intends to retain all existing talent & programming contracts. That is usually one of the first things the court addresses. I recall how Citadel handled it, that within minutes of the terms being approved by the court, there was a companion announcement that contracts will be honored. That included contracts with sports teams that the company has.
 
You raise very good points. Can anyone browsing this forum confirm whether or not Cumulus actually paid the $50 million to Merlin?

RBR reported the following:
The terms have not been changed since 2014, and it pay an amount equal to the greater of $70 million minus the aggregate amount of monthly LMA fees. Or, Cumulus may pay $50 million with 90 ninety days of the LMA’s fourth anniversary — January 2018.

Given the timing of the Form 314 filing, is is believed that the $50 million option is being executed at this time by Cumulus.
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Source: http://www.rbr.com/chicago-alternative-for-cumulus-ownership-over-an-lma-conversion/

Let's assume for a second Cumulus has NOT paid the $50 million.

What recourse would Merlin Media have against Cumulus under such a scenario? Isn't Merlin "made whole" by virtue of the fact they retain ownership of the stations, whose combined fair market value easily exceeds the $50 million payment that's due? I don't see how an unsecured claim would be due & owing. I assumed this was why the unsecured claim allocable to Merlin Media listed in the first day filings was limited to delinquent LMA payments.
 
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I should add only the top 20 unsecured claims are listed on the bankruptcy petition.

The instructions clearly state "...do not include claims by secured creditors, unless the unsecured claim resulting from inadequate collateral value places the creditor among the holders of the 20 largest unsecured claims."

I would argue the $50 million owed to Merlin is a fully collateralized claim. Why? Simple. The fair market value of WLUP & WKQX on a combined basis exceeds $50 million.

Bottom line: Mr. Taylor's reading of the tea leaves may or may not be correct. I need to see some proof.

I don't see how Cumulus would have "ample cash on hand" if they already forked over the $50 million.
 
MarkW said:
I don't see how Cumulus would have "ample cash on hand" if they already forked over the $50 million.
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Keep in mind they got $125 million in September from the sale of the KABC tower property.

The Merlin deal was announced in October.
 
Yeah, it was "announced."

Announcing a deal and actually closing the deal are two separate things. The FCC database still shows a subsidiary of Merlin Media as the owner of both stations.

Also, did you read Cumulus 10-Q filing from September 30? Their cash on hand was only about $69 million, if I remember correctly. They hemorrhaged a LOT of cash in Q3. At June 30, I believe they had about $140 million in cash on hand.

Assuming you are correct that the KABC land deal closed in September, I suspect a large portion of that $125 million was used to prepay the Term Loan (the remainder likely was spent on closing costs and taxes).
 
Following the recent Entercom/CBS deals, could they swoop in and grab the Merlin properties? I asked this on another thread, but was dismissed. The deal was announced days before the bankruptcy talks started up. In my mind, when Cumulus started talking bankruptcy, this deal would have been the first to bite the dust. Plus, from an Entercom view, these stations could see them create a "wall of Rock".
 
The industry trade media all too often are only capable of regurgitating or paraphrasing company press releases.

RadioInsight's original reporting on the Cumulus BK filing was riddled with misstatements of fact (albeit unintentionally).

All Access to this day *still* refers to this as a "pre-packaged bankruptcy," which is a total misnomer.

Even though the prospect of losing WLUP and WKQX would hurt Cumulus in the long-run, the truth of the matter is - Mary Berner doesn't care right now. She wants to hoard as much cash as possible so that it can be used to cover normal course operating expenses and bankruptcy expenses. If $50 million or $51 million needs to be forked over to Merlin, it greatly reduces Cumulus' cash on hand and increases the probability of needing DIP Financing.

If "friendly" parties are unwilling to extend DIP financing, that leaves the door open for someone like Lew Dickey to present a DIP financing proposal to the court. The provider of any such financing would receiving priming liens over all existing (i.e. pre-petition) creditors. This would give any DIP financier a position of strength from which to cut deals as part of Plan of Reorganization talks. The notion of Lew Dickey having such leverage worries Mary.
 
MarkW said:
Even though the prospect of losing WLUP and WKQX would hurt Cumulus in the long-run, the truth of the matter is - Mary Berner doesn't care right now.
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Probably not the case. The original deal for WLUP/WKQX allowed Cumulus to pay a certain percentage of the deal in stock rather than cash. There's little doubt Cumulus still wants the stations. The issue appears to be that Merlin wants the money paid in cash now that Cumulus stock is essentially worthless while Cumulus would prefer to do as much as possible in stock, which would leave Merlin getting tons of stock that will likely be settled for fractions of pennies on the dollar.

I have to wonder how much Cumulus stock some of my former employers still own. When Cumulus bought my former stations for almost $40 million in 2004, the stock was trading north of $20/share, and all but a little less than $2 million was payable in stock unless Cumulus opted to pay cash. If they've kept very much of that stock, they're holding the bag.
 
I suggest reading the following pleading:
http://document.epiq11.com/document...57&projectCode=CUI&docketNumber=119&source=DM

Excerpt:
"Merlin owns two radio broadcast stations in the Chicago area. Prepetition, Merlin agreed to sell the stations to the Debtors for roughly $50 million in cash. When it came time to perform, the Debtors instead sought to negotiate the purchase price to a lower cash amount. Upon filing for bankruptcy protection, the Debtors revealed that they proposed to treat Merlin’s claim as a subordinated claim under Section 510(b) of the Bankruptcy Code, apparently on the theory that (in limited circumstances not present here) the Debtors would have had an option to pay the purchase price in stock of Cumulus Media Inc. (the “Stock”). No such option existed here, because it could have arisen only if, among other things, the Debtors were able, at closing, to issue and deliver registered, listed, freely tradeable Stock worth $50 million in the market."

I agree that Cumulus wants the stations. However, Mary & crew do not want to move forward if it means having to fork over $50 million in Cash prior to confirmation of a Plan of Reorganization. The Company needs that cash to fund operations while the bankruptcy proceeding takes place. Remember, their Revolving Credit Facility is now gone (it is unclear if any availability exists under the asset securitization facility). If Cumulus has to fork over the dough to Merlin, that greatly increases the risk of a cash crunch in early 2018 and the need for DIP financing.

That fact Cumulus attempted to pay in worthless stock - when it knew a bankruptcy filing was imminent - is hysterical. It sure looks like Cumulus was acting in bad faith.
 
Hmmm...the Put & Call was supposed to take place 4 years after the closing of the agreement, which was entered on January 2, 2014. Instead, they activated the Put in October of 2017. That needs to be explained.
 
TheBigA said:
Hmmm...the Put & Call was supposed to take place 4 years after the closing of the agreement, which was entered on January 2, 2014. Instead, they activated the Put in October of 2017. That needs to be explained.
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Better late then never right?
 
MarkW said:
I suggest reading the following pleading:
http://document.epiq11.com/document...57&projectCode=CUI&docketNumber=119&source=DM
That fact Cumulus attempted to pay in worthless stock - when it knew a bankruptcy filing was imminent - is hysterical. It sure looks like Cumulus was acting in bad faith.
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I've read the court filing. I'll leave it to the lawyers and judges to decide if Cumulus acted in bad faith or if it was an acceptable level of risk that didn’t go Merlin's way. I'm satisfied in my current employment and don’t get paid enough to want the stress of deciding that.

Long story short is that Cumulus did this deal like it does every deal. It never intended to pay anywhere near the full price in cash. Merlin, though, indicates it never intended to hold onto the stock, at least not for any extra length of time. The crux of Merlin's argument seems to be that it's not a stock transaction unless it trades on a public exchange, like the NASDAQ, which delisted Cumulus a few months ago.
 
Kent said:
I've read the court filing. I'll leave it to the lawyers and judges to decide if Cumulus acted in bad faith or if it was an acceptable level of risk that didn’t go Merlin's way. I'm satisfied in my current employment and don’t get paid enough to want the stress of deciding that.

Long story short is that Cumulus did this deal like it does every deal. It never intended to pay anywhere near the full price in cash. Merlin, though, indicates it never intended to hold onto the stock, at least not for any extra length of time. The crux of Merlin's argument seems to be that it's not a stock transaction unless it trades on a public exchange, like the NASDAQ, which delisted Cumulus a few months ago.
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The ENTIRE Cumulus float is not worth $50M! (19.5M shares/$2.2M market cap) How could they do a stock only deal without issuing new stock? Wouldn't that require shareholder approval and a reduction of share value?
 
wavo said:
The ENTIRE Cumulus float is not worth $50M! (19.5M shares/$2.2M market cap) How could they do a stock only deal without issuing new stock? Wouldn't that require shareholder approval and a reduction of share value?
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According to the filing, Cumulus didn't actually offer stock. It was mentioned by Merlin hypothetically.
 
As an observer, I seem to remember Tribune Media was in the hunt for additional radio properties and was talking to Merlin about WLUP and WKQX just before Tribune was permitted to own more than one station in the Chicago market. Then, suddenly, Cumulus came in with a LMA offer. Is it possible that this move was as much an acquisition plan as it was a preemption plan to keep Tribune from a better position here? If that was the plan, it worked! WGN is being sold to a bottom feeder, never to be a market maker again in Chicago!
 
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