Citadel With a Noose Around Its Neck

Citadel CEO Farid Suleman – as arrogant as ever – did an interview with Inside Radio that was published Monday and admitted making no mistakes.

It’s the economy – not him.

And while Farid said every option was on the table regarding their debt payment that Citadel is coming up empty on January 15th, he referred to the bankruptcy option as the “B” word.

Apparently this bean counter learned nothing from Mel Karmazin when he worked for him. You see, Mel – the great salesman – would have had analysts thinking bankruptcy was a great thing.

And it is -- for the equity holders -- not radio, its people, its advertisers or listeners.

When Farid Suleman has the noose around his neck he jumps.

Farid admitted what we’ve been saying here for months that he is negotiating with his lenders to do a prepackaged bankruptcy. Of course, the 27% stake Forstmann Little has in Citadel will be diminished and Suleman will be lucky to come away with a job.

Suleman told Inside Radio “some agreement will be struck”.

Ya think.

Here’s a disingenuous statement if I ever heard it:

“Nobody is happy about what the decline in radio revenue is doing to our capital structure, but they understand that we’re doing everything we possibly can to preserve our business and position it for future growth.”

Now that’s just not true.

Let’s say it.

Farid Suleman has done many things that have made the situation worse but you can’t expect him to take responsibility for wrecking the company by firing talented managers, sales execs, reps, programmers and air personalities.

It’s not the ABC acquisition that his big ego liked but Jeff Smulyan’s business sense rejected.

Can’t be. Farid said so. After all he said in his interview that the ABC acquisition was good strategy and bad timing.


There was no recession when he bought ABC. Farid is revising history again. Guarantees against a recession do not come when deals are struck but smart deal makers usually have a plan B.

What is significant is that Citadel will either file for Chapter 11 on or before January 15th – voluntarily with a pre-arranged deal with lenders or involuntarily because it can’t make its loan payment. Either way, Citadel is weaker.

The lenders come out ahead. They’ll take write-offs. Continue to cut expenses and pray for the economy to come back so that they have the option of selling some or all of the properties.

In a way, the lenders never lose money.

They make fees. They wind up with the assets after the fools that they lend money to screw things up. You didn’t need a recession back in 1996 to know that consolidators were buying stations at multiples so high that they could never make the debt payments.

But no one noticed.

Look at Clear Channel.

The equity owners of Clear Channel, Lee and Bain, are getting ready to hit their credit card again to raise $2.5 billion through its outdoor unit so that the outdoor company can repay parent Clear Channel.

Got that?

But that’s not the big story. The big story is that instead of borrowing this money at 5 percent as it has done in the past, it will have to pay between 8-9 percent for the money in the current market according to The Wall Street Journal.

There’s talk that the money market is ripe for this and the trade press is falling for it but what is happening is what caused the problem in the first place – refinancing debt at higher interest rates.

On Wall Street, this is how it’s done.

For those of you who actually think this is a radio industry out there, you would be wrong. (Only in smaller markets where local operators are doing local radio and their debt is under control).

The top three consolidators are playing their own game of “Money” where they get to be the bank.

Clear Channel’s existing bonds have been selling at the whopping price of 68 cents (up from 28) and that’s a rally on Wall Street these days.

Clear Channel isn’t going to default.

Citadel isn’t going to take its chances with a bankruptcy judge – they are going to do it themselves.

Cumulus has a little more time to come up with a Harvard Business School case study to lead them out of the financial mess but they can hide but not run to turn the old phrase around backwards.

Regent, well – that’s another matter. They could go belly up in front of a judge.

So, what’s worse than bankruptcy?

More of the same.

More of Farid, John Hogan and Lew Dickey.

The equity owners run companies into the ground all the time in all kinds of economies.

If you don’t want to get your heart broken any more than it is right now, understand this – the leaders in radio are playing with Wall Street’s money and lenders get to make the rules.

Rule number one: don’t sweat the big stuff and rule number two?

It's all big stuff.

When these bankers can emerge time and time again after shipwrecking their assets, can you think of any better CEOs to be at the helm than Suleman, Hogan and Dickey?

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