Pre-packaged Bankruptcy for Citadel

If you want to know how Citadel CEO Farid "Fagreed" Suleman is going to avoid filing for Chapter 11 bankruptcy January 15th when he can't pay $150 million in debt, here's the answer.

It appears the fix is on right now to emerge with a pre-packaged bankruptcy for Citadel.

That is, it happens fast.

Everything is predictable because it has been negotiated in advance and it's kind of like having the honeymoon before the wedding.

Without this maneuver, Citadel throws its fate into the hands of a bankruptcy judge who is likely to appoint caretakers to preside over Citadel while a plan is drawn up to emerge from Chapter 11 protection. Translated that means Suleman loses control over the process. Stations could be sold for pennies on the dollar.

Citadel and the lenders don't want that.

That's why he is working feverishly behind the scenes to avoid this scenario.

Citadel share price has been fluctuating upward a little bit -- as much as a four penny stock can increase -- I believe, because insiders know what's going on behind the scenes.

Here's what I think will happen to Citadel:

1. Sometime before the end of the year, Citadel and its major creditors will agree on a way to mitigate the debt that the company cannot currently pay.

2. The creditors will in effect take over control of Citadel leaving the original company with a minority position. I suspect because Citadel executives are playing nice and agreeing to go willingly, they may get a little more of the company than they might have. Still, both sides are going to wrap up an agreement that says since Citadel cannot pay its debt, the creditors will take it as equity and the lenders will own and run the company.

3. A bankruptcy judge will approve this in one day -- quickly -- and as if it had never happened, Citadel is made whole again and becomes a functional business.

4. Current management including the guy who got them this far into such a pickle -- Fagreed Suleman -- may be invited to stay or may be asked to go. I'm betting Suleman comes away with at least a short-term contract as a "reward" for playing nice. That's more than many of his employees got when he fired them in the midst of Citadel's financial crisis but that's why Michael Douglas is making a sequel to "Wall Street" right now in the same city where Citadel is headquartered.

5. If Fagreed stays, his management "team" including Judy Ellis stays in place.

6. No stations get sold from the portfolio unless or until the new owners, Citadel's creditors, decide it is accretive to their fat wallets.

7. Investment banks are never going to wind up in the radio museum. They are not pioneers. They are not legends. They are financial predators looking for fees. From the moment this deal goes down it's really all about real estate not radio -- if you get my drift.

8. Investors who were looking to buy the distressed Citadel stations out of bankruptcy will now have to wait until the price is right for the new investor owners.

Remarkably, this pre-packaged bankruptcy makes Citadel a viable business again even without a pickup in the economy. Citadel and the former ABC Radio Networks does between $600-800 million a year and would be doing just fine even now if Citadel didn't have such a burdensome debt load.

All this is a giant indictment of how investors artificially drove the prices up for radio properties during consolidation and irresponsibly burdened shareholders with debt that was untenable except under boom economy conditions -- certainly not realistic.

Once the pre-packaged Citadel bankruptcy is complete, the enterprise will rise or fall on whether it will run under current management. If it doesn't, Fagreed will be out. If it does, get the company jet refueled again.

Citadel will emerge in the image of Lee & Bain, two investment companies that bought Clear Channel at too high a price and now must hold it until they can sell all or part of it for fees and intended profits.

Someone ought to take this outrage to New York Attorney General Andrew Cuomo and have him investigate the fleecing of shareholders who in the end saw their investments diminished to penny stocks because Suleman and the Citadel's founders are about to get a "Get Out of Jail" card for free.

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