Citadel stock is worth four cents -- and less than a dollar for long enough to be booted off the New York Stock Exchange.
Because the market has already priced in for the worst case scenario, the situation for equity holders is no doubt a lost cause.
The market is saying Citadel stock is worthless.
The NYSE gave up on them.
Now Citadel CEO Farid "Fagreed" Suleman has departed from his earlier optimism as his mismanaged company filed an 8-K form with the SEC quietly on Monday in effect admitting the risk of violating its debt covenants.
It sounds like Fagreed knows Citadel's goose is cooked as witnessed by the fact that he in effect used Citadel's woes as an excuse for filing the corporate 10-K late.
You can feel the financial distress at Citadel by viewing the Monday filing. Citadel is working with lenders to obtain waivers to avert default. But Fagreed admits that default is very much a possibility.
It's chilling and real.
See for yourself in Citadel's own words (from the 8-K filing):
“As of December 31, 2008, the Company is in compliance with its debt covenants under its senior credit facility. However, the expected continuing decline in radio revenues in the first half of 2009 and the resulting projected decline in operating profits creates uncertainty regarding the Company’s ability to continue to comply with its debt covenants under its senior credit facility through 2009. As a result, the Company is currently working with its lenders to obtain a waiver of or amendment to its senior credit facility; however, there can be no assurance that the Company will be able to do so. In the event that the Company does not obtain a waiver or amendment, then the Company will likely be in default of its senior credit facility.”
The company is clearly at risk of technical default -- sees trouble ahead -- and seeks to do something, anything, to avert a calamity.
I suppose it is still possible to restructure the debt, but it's not easy.
Such refinancing of debt will likely cost them more to dodge the bullet -- an ominous sign for shareholders.
Just a few short months ago, during his November conference call, Fagreed was singing a different, more optimistic tune that you can pick up in this statement from that call:
“The company has no liquidity issues….We will be generating over $120 million of free cash flow this year and probably around the same next year. So, no liquidity issues, no payment issues….We’re totally focused on paying down debt, and we will continue to do that. I think in terms of our bank covenants clearly we’re in compliance in the third quarter. We expect to be in compliance in the fourth quarter. And we will continue to watch this very carefully, but I think the combination of all of the cost cuts, all of the improvements that we’re expecting next year and we really are in a mode where we are using all of the free cash flow to pay down. That should help us through next year. And again as I said we’re still generating over $100 million of free cash flow.”
Boy, have times changed in a few short months. Either that or Fagreed had no other legal choice but to come clean in this SEC report.
Well, you didn't have to wait until last Monday to know Citadel was in big trouble. All you had to do was talk to their employees -- the ones they didn't "lay off".
Fagreed has earned his title as CEO -- Chief Execution Officer -- by firing his assets.
And his "radio wife" Judy Ellis may be tough to some, but her results in re-engineering the stations have been unremarkable.
You can only run a station into the ground so far with the economy as an excuse -- and a four cent stock -- well, that's on Fagreed and Judy.
As one of my readers pointed out: "You can work with a downturn, and survive. You can also work in a decent environment with inexperienced managers. What you can't do is work with inexperienced managers in a bad environment."
Fagreed Suleman did the impossible -- he vaporized ABC Radio, the costly acquisition that only made sense for Disney to sell -- not Citadel to buy.
What really must stick in his craw is that Fagreed is a bean counter -- first, fast and foremost. And look at the mess he has presided over. Oh well, guess you need to be more than a bean counter to run a successful, growing company.
Yesterday I wrote about innovation as the answer for radio's decline. Unfortunately, when your stock is worth nothing, and you're warning the SEC you may not make it, you can understand how low on the priority list innovation becomes.
And to be fair to Suleman, the other consolidators are just as inept. They are all fools and they have this in common:
• All miscalculated that radio could fall this far this fast.
• None had a Plan B -- as we often discussed in this space. In other words, everything had to go according to the investment bank's plans or the groups would fall. You see how far that got them.
• All became enamored of economies of scale even well before the economy tanked. They got a thrill, it seemed, by being able to squeeze out a few pennies of profit for their Wall Street captors, even as they were putting their assets at risk.
• Every last consolidator cut loose top management, sales, programming and support personnel as their crises got out of control. In essence, they could find no other way to cut operating costs but to weaken their own stations by such firings. This was my clue that they would not succeed. I understand why they thought they had to do it, but the fact they actually weakened their own companies was an act of desperation.
• No consolidator has succeeded -- every one is in some jeopardy. Only a handful of operators can survive because their debt is under control. The consolidators hit their credit cards too often and for large amounts digging themselves into a hole they cannot get out of.
Sad to say but Citadel would have done better with Bernie Madoff.
If they were first in with Madoff before he got caught, they at least could have made money.
With Fagreed handling the finances, Citadel never had a chance.
Citadel may be first to file for bankruptcy -- or they could win a temporary stay of execution. With a four penny stock, what difference does it make. In the end, it appears several of radio's top consolidators will eventually default.
One more thing.
When we talk about bankruptcy we generally mean that the companies are in default of their loan covenants.
But what do you think it is called when a company pays out more than it makes?
You guessed it -- bankruptcy -- which is where radio is at this moment (technical default or not). Hell, it doesn't take a genius in finance to know that the stock market votes every day and when it says Citadel is a penny stock, I guess it knows something.
What's going to happen in the months ahead is the comeuppance of arrogant radio CEOs, but you won't find anyone who loves radio celebrating.
The thing that made radio such an attractive business to Wall Street investors in the first place 12 years ago was all the free cash flow stations threw off. But after buying radio stations that were overpriced (and for which you'll see lawsuits in the months ahead), these little stations that could could not generate enough cash flow to make up for the single most fatal mistake that ever occurred in the age of consolidation.
Buying stations for prices that made the debt payments unserviceable in all but boom times.
The boom times are long over for radio.
Now it's bust.
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