Citadel Facing Near Certain Bankruptcy

You think Sam Zell has problems with his bankrupt Tribune Company?

Citadel is on the fast track for disaster by the end of January and what you may be seeing in the next few months is their admission that things are hopeless.

For example, Radio-Info's Tom Taylor has been all over rumors that Citadel may be selling its ABC stations to raise cash.

Bonneville is the name Tom keeps hearing.

And as usual, Tom's nose for news is outstanding.

There are several scenarios emerging -- one worse than the other -- for the financially pressed Citadel. Perhaps you've not heard much from them lately. There's nothing left they can do. Fagreed Suleman can fire everyone and he's still not likely to make Citadel's debt payments.

Here are the possible -- some say, probable -- options by the number:

1. Citadel could sell one ABC station or several to generate enough cash to be able to meet their liquidity targets by early 2010. That way they will be able to payoff the debt that matures then.

2. Citadel needs a whopping $150 million minimum in cash by January 15, 2010 plus another $49 million to repay their convertible notes.

3. If Citadel sells all its ABC stations -- the least likely scenario in my opinion -- they could manage the maturing debt or try to renegotiate the covenants again. This would allow them to return to their pre-ABC merger form. What were they thinking anyway? Few thought the ABC merger was a smart move. And there really weren't a lot of other buyers for ABC. Emmis kicked a few tires and walked away -- or should I say, ran away.

4. Another option is to sell an ABC station or two -- Bonneville is a possible buyer in Detroit. Bonneville is privately held. Their balance sheet is healthy and they are well-run. (In previous editions I said that John Gallagher was a Bonneville exec -- he is with Greater Media).

5. Cox or Greater Media (also privately held) are the only other possible buyers in the view of an analyst familiar with this situation but there is no way to know if either corporation is interested in buying some or all of the ABC properties. If there are other buyers lurking -- not likely -- they'd need to have ready resources available to buy and manage the station(s).

6. Citadel's debt situation is so public that it precludes them getting anywhere near what they originally paid for ABC properties in the roll up. In fact, Citadel selling even one ABC station is tantamount to a fire sale under such public distress.

7. Citadel, thus, will walk away with pennies on the dollar if they sell assets -- but money nonetheless to keep the wolf away from the door a bit longer. The destruction of capital that occurred on Fagreed Suleman's watch is that spectacular.

8. Citadel may not be able to sell any ABC stations to raise funds -- they may not get the price they need because certainly they will not be getting the price they want. In this case, do not pass go and go directly to bankruptcy court for reorganization.

To quote the late great ABC commentator Paul Harvey, "so now you know the rest of the story".

More firings may proceed but even this route cannot save Citadel enough money to prevent running up against its debt covenants.

If a radio broadcasting company could be in hospice, Citadel is there already being assisted on end of life issues.

With most radio groups posting 18 to 25% losses in the recent quarter and the economy still uncertain, Citadel cannot look to increased cash flow to help make up the difference.

It's come down to this.

Sell stations at very low multiples just to make debt payments.

Sell all of the ABC component keeping in mind what is left has already been gutted by Fagreed and his radio wife, Judy Ellis. Bet the shareholders will be angry to find what's left with significant ABC properties in the portfolio is a pig in the poke.

Or, bring it on -- let it go to bankruptcy court.

Citadel has been good to Fagreed financially and to some of the principals. Remember those $10 million plus compensation years not too many years ago?

Hey bankruptcy happens.

One last prediction -- something will likely happen within the next two to three months.

Time is not on Citadel's side.

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