It is taking a little bit longer than originally planned for Cumulus Media to convince debt holders to take a deal that, on its surface, may not be the most attractive of offers. The company last month announced a swap that offered holders of $346 million of loans a deal that would pay them $800 for every $1,000 owed by the company in exchange for a higher interest rate on the debt. Cumulus would also push out the due date from 2026 to 2029.
Cumulus CFO Frank Lopez-Balboa said during the company’s quarterly earnings call last month that reducing the total owed by over $130 million and proactively pushing the 2026 debt maturities back three years would “enhance the company’s long-term strategic and financial flexibility.”
But Cumulus apparently did not have sufficient takers, and this week it extended the offer through March 18. Those lenders that do not participate will become subordinated debtholders.
S&P Global says it considers the move a “restructuring transaction” and the firm lowered its credit rating on Cumulus. “We view the proposed debt restructuring as distressed because the company’s lenders will receive less than they were originally promised,” says S&P. It says once the swap is completed, it also expects to lower its credit rating further to reflect what it says is a “selective default” on its loans.
“We view the proposed restructuring as distressed and tantamount to a default,” S&P says in a report to clients. It is also worried because Cumulus’ debt leverage is “elevated” and what S&P says are the “secular and cyclical challenges” facing the radio industry.
“We do not believe the higher interest rates on the new debt will provide the company’s lenders with adequate compensation,” S&P says. It adds that it would raise its rating on Cumulus if the company does not consummate the transaction.
But Cumulus would rather not hit the pause button. It has retired $130 million of debt since 2022 to its lowest debt in more than a decade. The proposed swap would give it a few more years to take advantage of not needing to pour limited cash into debt repayments and grow its radio and digital business for the long-term.
Unusual Timing
The financial maneuver is also under closer scrutiny since it comes just weeks after Cumulus adopted a so-called poison pill to prevent any hostile takeover by a Singapore-based shareholder group. It came after Renew Group Private Ltd. spent $6.8 million to take a 10% stake in Cumulus, and said it planned to buy another 10% of radio’s third-largest group. It is a vote of confidence from 5-Hour Energy drink billionaire Manoj Bhargava in radio and Cumulus. He has also acquired $60 million of Audacy’s debt as that company works through a chapter 11 reorganization. And Renew Group has investments in other media companies, including Sports Illustrated, TheStreet, Parade Media and Men’s Journal.
In an interview with The Street last August, Bhargava said his investment in media companies is a way to cut out the middle man in the advertising equation and gives him an outlet to promote the products that his companies sell to consumers. “Instead of buying spots, we’ll be getting into the media side of it,” he said.
Bhargava also said that he believes marketers should spend more on reaching consumers over the age of 40, where radio does particularly well. “There are a lot of products that only 40-plus people can afford, so we’re going to go where nobody else is, which is 40-plus,” he said.
But Cumulus’ board seems to think there could be ulterior motives, and it adopted the poison pill. Board Chair Andrew Hobson said it will ensure that all shareholders receive “fair and equal treatment” in the event that any proposed takeover of the company develops. Hobson said it also guards against someone gaining control without paying “an appropriate premium” for that control.