9 Months and Counting for Citadel Radio

Citadel just bought itself a little more time to avoid bankruptcy by renegotiating deals with lenders.

It isn't pretty.

May not even be doable.

Both the lenders and Citadel CEO Farid "Fagreed" Suleman have no choice. Bankruptcy is the likely end of Citadel and bankruptcy is absolutely the end for the lenders.

That's why both sides keep dancing with each other. They may not like their partners. May step on each other's toes, but they're all they've got right now.

Here's the latest:

1. For the fourth time in 12 months, Citadel has changed its finance agreements with lenders (the other times being March, May and November of 2008). Citadel won concessions from its lenders last week using the same old threat of breaching loan covenants.

2. Citadel must have $150 million in available cash as of January 15, 2010. Right now it has less than $19 million but that doesn't count the $170 million in receivables still on the street. Does anyone ever collect 100% of slow pay?

3. By January 15, 2010, the maturity on its remaining convertible subordinated debt must be pushed back to Sept. 2014. Sounds easy. Not easy. That means so-called senior lenders are requiring Citadel to tell its less-senior creditors that they won’t be paid on time. Citadel must also stop accelerated payments on this convertible debt.

4. Mark January, 2010 on the calendar. Citadel has to have put aside $150 million in ready cash plus repay $49 million in convertibles, or ask the convertible holders for an extension.

See what I mean? This is no slam dunk. But, there's more...

5. Even if Citadel has more than $30 million in cash at any time, it has to set aside the excess into a special escrow account for its creditors. Obviously, this will inhibit the company's ability to operate the business, including capital expenditures, repurchase convertible debt, and other liquidity needs. In other words -- expect more cutbacks and firings.

Citadel doesn't deny how dire the situation is:

“Based on the current economic and capital markets and the continuing decline in radio revenues, it will be difficult for the Company to meet these requirements in 2010, especially those commencing on January 15, 2010. If we fail to do so, we will be in default under our Senior Credit and term Facility and would also be in default under the terms of our convertible subordinated notes.”

And Citadel is not ruling out bankruptcy in its 10K:

In light of the current economic environment and the possibility of a default under the terms of the Fourth Amendment, the Company may be required to renegotiate its capital and debt structure, including the possibility of a reorganization of our liabilities with our lenders. In the event the Company does restructure, it may result in the interests of the Company’s public shareholders as well as its debt holders being diluted or eliminated.”

The net effect of Fagreed's last minute refi is he buys a little more time, but there's no getting around one painful reality.

If ad sales don't dramatically increase -- unlikely if the economic forecast is to be believed -- Citadel is just postponing the inevitable.

Cutting through all this and taking a look at what it all means for Citadel and ABC employees:

• Default is not imminent but a distinct possibility and as one financial expert says, "a distinct possibility and a real and material risk over the next nine months".

• The bad economy, the latest and previously negotiated (and renegotiated) obligations to its creditors and virtually no money to invest in running the company means burdensome debt may put the future of Citadel out of the control of Suleman, the directors and even lenders.

• The next nine months are absolutely crucial to Citadel and it's hard to be optimistic about its eventual success because of the debt it has saddled itself with -- and, the poor economic picture.

• If business does not pick up and the economy recovers to allow an improvement in the credit environment, Citadel may have no other option but to default. Citadel's delisting from the New York Stock Exchange and it's four cent per share stock price makes it hard for Citadel to get operating capital.

• Refinancing debt could be prohibitive.

• Layoffs, asset sales (if possible) and more operating cutbacks are to be expected because Citadel has little wiggle room in meeting its designated monthly cash flow benchmarks resulting from their refi efforts.

• For those of you who hope to oust Fagreed from his job, you could get your wish. But a judge will decide who runs the company if it defaults and enters bankruptcy. A judge will also rule on whether Citadel has to honor its pensions and severance agreements while in bankruptcy. In other words be careful what you wish for.

Maybe it's a coincidence but a few days ago, Fagreed issued an across the board 5% pay cut for all Citadel/ABC employees except those with contracts and union workers effective the next pay period.

I'll have to give Fagreed credit for giving all employees an extra week of paid vacation to take some of the sting out -- a move people-friendly Cox Radio did when it had to cut wages.

In this tenuous battle for survival we sometimes think of what's happening at Citadel as a business story. Yes, it's that -- but much more.

It's a human tragedy that on every level inflicts pain on listeners and employees not just investors and shareholders.

And it didn't have to happen.

Radio has survived many recessions in the past -- some of them pretty damn bad. But this time it's not the economy that is taking radio to the mat. It's the debt consolidators who irresponsibly ran up the debt to buy and then refinance the stations they bought at inflated multiples. I'm surprised someone hasn't sued all of the consolidators for buying overpriced assets that they could only finance if everything went well forever.

For years, they simply went to the lenders and refinanced their debt as needed -- and on they went. A blatant disregard for the fact that sometimes debt has to come due. And most consolidators would be fine during this recession if it were not for the fact that everything they can make or save is being poured into paying debt service.

Back to the Citadel employees.

How would you like to be working three or four jobs because the company's strategy was to cut the work force and let the survivors pick up the slack?

I'm told at some Citadel locations when they were informed of Fagreed's 5% pay cut, the employees were angry but eventually grateful that they still had a job.

And let's call it what it is -- Citadel is taking advantage of that fear as it is forced to continue with cost cutting and employees are forced to do all the work they can barely handle.

In other words, highly competent people are given more jobs than they can handle and I'm sure would agree as hard as they try, they can't live up to their own standard of competence.

Thus, Citadel is breeding "overload" incompetence which actually makes the company less capable of competing appropriately.

Unlike other consolidators who issued pay cuts, Citadel employees never got the news from their CEO. Maybe Judy Ellis. Or a manager who was ordered to tell them.

You hear a lot of happy talk about Citadel and the other consolidators but the truth is that unless a miracle happens, it is only a matter of time before this company comes tumbling down.

Mismanagement is the reason -- on almost every executive level.

Their PDs, GMs, sales managers and talent were left to make all the sacrifices (financially and otherwise) to make up for their bosses bad decisions and unspeakable use of credit in an irresponsible way.

Don't kid yourself.

Citadel has been coming apart for a long time. Makes you wonder if Fagreed (who worked as Mel Karmazin's bean counter for ages) didn't learn anything from the master.

Infomercials instead of content.

Repeater radio -- old shoes like Don Imus being recycled in only a way officials at Waste Management could applaud.

Utter disregard for its talented and able people. Hell, the ABC stable of talent alone is full of people who could have avoided Citadel's apparent fate.

And, one last marker.

Citadel's flagship radio station -- the once mighty WABC -- did only $21.3 million last year.

That's in New York -- the biggest radio market in the world.

By comparison, WBAP exceeded that and did $25.3 million.

Not taking anything away from its sister Dallas news/talk station or the fine people who turned in $25.3 million in billing -- something is wrong.

The dictionary defines a citadel as a fortress, typically on high ground, protecting or dominating a city.

How odd?

Radio's Citadel was not a stronghold -- certainly did not take the high ground and it failed to protect or dominate any city in which it operated.

Citadel radio's employees deserve better leadership than they are getting.

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