Alpha Media USA LLC on Jan. 24 filed for Chapter 11 in bankruptcy court in Richmond, Va., to implement a restructuring agreement the company reached with holders of its second-lien debt, according to court filings. The court filings state, however, that Fortress, the holder of the company's first-lien debt, is not on board with the proposed reorganization plan, suggesting an uncertain path forward for the company through the bankruptcy process.
The company is the largest privately held radio broadcast and multimedia company in the United States. It owns or operates more than 200 radio stations that reach a weekly audience of more than 11 million listeners in 44 communities across the United States. In addition to its radio stations, the company provides digital content through more than 200 websites, along with mobile applications and digital streaming services.
While the company said it had a "healthy financial performance in 2019," it faced "significant headwinds" beginning in the first quarter of 2020 as a result of macroeconomic factors related to the COVID-19 pandemic, leading the company to restructure.
According to the first-day declaration filed in the case by John Grossi, the company's CFO, following months of proposals and negotiations the company in late December 2020 reached an agreement on a prepackaged reorganization plan with Intermediate Capital Group, or ICG, the holder of its second-lien debt, "predicated, in large part," upon $37.5 million in new money, with the company's second-lien debt and unsecured notes to be converted to equity. ICG committed to provide a $15 million junior DIP facility in connection with the new money financing.
According to Grossi, the company launched a solicitation of votes for the prepackaged plan on Jan. 8, but on Jan. 15, the voting deadline, the prior holders of the company's first-lien debt notified that company that they had sold their positions to Fortress.
"Fortress soon made it clear to the debtors' advisors and advisors to ICG that it was not willing to immediately agree to support the prepackaged Chapter 11 plan or provide a post-petition financing facility like the … ICG DIP proposal," Grossi said.
With the prepackaged proposal no longer viable as a result, Grossi said, the company "worked round the clock" to develop an alternative, with both Fortress and ICG submitting proposals. The Fortress proposal was predicated on, among other things, a bankruptcy sale process without a stalking horse bidder. The company determined, however, that the Fortress proposal was not viable and instead pursued an ICG equitization proposal, Grossi said.
Grossi did not state whether Fortress intends to actively oppose the proposed reorganization plan.
According to the proposed reorganization plan and disclosure statement, filed Jan. 25, first-lien claims would be allowed in the amount of roughly $90 million (about $75 million outstanding of the company's $265 million term loan maturing in 2022 and $15 million in revolver debt), with lenders receiving either new first-lien recovery notes on a dollar-for-dollar basis or payment in full in cash, a recovery pegged at 100%, although, notably, the class is characterized as "impaired."
Second-lien note claims would be allowed in the amount of roughly $72.6 million and would receive 100% of the equity in the reorganized company, subject to dilution from a management incentive plan, a recovery of 41%-83%, according to the disclosure statement. That recovery range implies a reorganized equity value of $30 million-$60 million.
According to the valuation attached to the disclosure statement, the company's estimated reorganized going concern enterprise value is $145 million-$175 million, with a midpoint of $160 million (implying net debt at emergence of $115 million).
Second-lien lenders would provide a second-lien exit facility in the amount of $37.5 million at L+750 if interest is paid in cash or L+950 if paid in-kind, with a 1% Libor floor. The term sheet provides for a $10 million incremental facility. The proceeds would be used to repay the company's $20 million debtor-in-possession, or DIP, facility (see below), with the remainder used for working capital and general corporate purposes.
The company's unsecured notes maturing in 2023, allowed in the amount of roughly $104 million, will not see any recovery.
The DIP facility, meanwhile, provides for $5 million on an interim basis and an additional $12.5 million available upon final approval (the bankruptcy court approved the DIP on an interim basis on Jan. 25, the court docket shows, with a final hearing set for Feb. 11). The last $2.5 million would be available for the company to use in consummating its reorganization plan. Interest under the DIP is L+600.
The company said the reorganization was subject to, among other things, approval from the Federal Communications Commission, adding that it expects to conclude the restructuring process in the first half of 2021. The RSA's milestone deadlines provide for, among other things, reorganization plan confirmation by April 14.
Sheppard Mullin Richter & Hampton is serving as the company's lead restructuring counsel, with EY Turnaround Management Services and Moelis & Co. serving as its financial advisers. Kramer Levin Naftalis & Frankel, Quinn Emanuel Urquhart & Sullivan, McGuireWoods and Fletcher Heald & Hildreth are co-counsel to an ad hoc group of certain lenders, and GLC Advisors & Co. is serving as financial adviser.