Citadel Publicly Warns of Bankruptcy

Farid Suleman is out of the closet on bankruptcy.

Federal rules required his company file its 10-Q report as all publicly-traded companies must.

There is a reason Suleman filed it on Friday evening just ahead of the weekend because it would be better if no one knew the blunt terms Citadel had to use to assess the prospect for bankruptcy.

The parade of shareholder destruction continues.

Among the revelations right from Suleman’s own mouth:

1. Citadel has only $26 million in cash on hand (as of September 30).

2. There was $150 million in accounts receivable as of the end of the third quarter. There is no collection agency in the world that can make a major dent in all that money left on the street.

3. Revenue declined by 15% -- a tad better than what their fellow consolidators are doing.

4. Cash expenses only declined 12%.

5. Revenue declined faster than costs, so EBITDA margin narrowed to 25% of revenue vs. 26% for the same period last year.

6. More troubling: interest expense was 1.7 times operating income. Last year it was 67% of operating income. Operating income this quarter covered interest expenses 0.58 times. Last year it was 1.5 times.

Citadel didn’t break out their third quarter cash flow numbers turning to a nine-month view instead probably to fog the issue.

But the big story on Action News tonight is that Citadel’s 10-Q disclosure (which is what a 10-Q is) actually mentions bankruptcy which it did not do in these terms in the required June filing. Here is the language as it appeared in Citadel’s Friday 10-Q disclosure. Think of it as from Fagreed Suleman’s lips to your ears:

“Based on the current economic and capital markets, the Company does not expect to meet its covenant requirements under the Senior Credit and Term Facility as of January 15, 2010”.


In spite of all the behind-the-scenes posturing and industry happy talk, Citadel is being forced to tell it like it is.

Here are the lowlights:

“In May 2009, the Company hired a financial advisor to assist in the evaluation of the Company’s financial options, including a possible refinancing and restructuring of its capital structure and debt”.

Guess we were right when we told you that Citadel is desperate to find a workaround to bankruptcy court where their fate would be in the hands of a judge and the potential for keeping the group together greatly diminished.

“The Company is currently in discussions with its lenders regarding this matter, including the possibility of seeking relief through a Chapter 11 filing under the U.S Bankruptcy Code; however, there can be no assurance that any definitive agreement shall be reached”.

This is even more telling because what Suleman is saying is that he is not sure whether lenders will redo their loans (i.e., a debt for equity pre-packaged bankruptcy, for example, where the lenders take over ownership of the company in return for forgiving the missed interest payments).

This means the lenders probably have all the cards and while I think they will arrive at a pre-packaged bankruptcy deal which a court could approve in as little as one day, the lenders have Suleman by his private parts and are squeezing hard.

“As of September 30, 2009, discussions with lenders were ongoing, and they remain ongoing as of the filing of the report in which these financial statements appear”.


Both the lenders and Citadel need to do a pre-packaged bankruptcy but only Citadel has no control over the negotiations. Read on.

“Should the Company default under our Senior Credit and Term Facility and under the terms of our convertible subordinated notes, our indebtedness may be accelerated, we would not be able to satisfy these obligations, and the Company would likely need to seek relief through a Chapter 11 filing under the U.S. Bankruptcy Code".

The nuclear option.

This is Citadel’s way of telling the Feds that the worst-case scenario is that they file for bankruptcy. Lenders lose the majority part of their investments. Shareholders get spit for money – after all, their share price is now valued at about four cents.

What is significant here is not that Citadel faces bankruptcy – who don’t know that, as they say in Philly.

It is that this public admission of helplessness indicates that the folks Citadel climbed into bed with to build their empire and over extend themselves to be able to buy ABC are now in a position to screw them.

To be sure the lenders cannot allow this to go to a bankruptcy court because they get pennies on the dollar after the deal is worked out.

They must go into court with a pre-packaged deal.

I see Fagreed negotiating for his neck right now and the ability to continue to be a "yes man" to his new bosses.

But the public disclosure of truth confirms what my readers already knew a year ago.

That this was going to end ugly.

Not just for employees but for the architects of a failed radio group that will soon be run by investment bankers just like the other investments they own.

From now on, Citadel in the hands of investment bankers, is all about real estate.

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