NextMedia Goes Belly Up – Here's Who Is Next

'Tis the season to be bankrupt.

The radio industry is weird – let’s face it. Their idea of a Christmas bonus is to give away controlling interest in their failing radio groups in return for the CEO keeping his job!

Ho! Ho! Ho!

And what is it with these pre-arranged bankruptcies? I know they are in but basically you’re handing over the company you ran into the ground to the people who gave you the loans you can't repay.

You lose.

They win.

Everyone who works for them gets screwed.

Sunday, Citadel filed its pre-arranged bankruptcy that will wipe out Forstmann Little’s 29% stake, leave shareholders with zero and give the equity holders operating control and ownership of the assets for resale later – presumably when they can make another profit.

Yesterday, NextMedia took gas.

You know, the small market radio group and outdoor company.

They did a pre-arranged bankruptcy. See how these radio consolidators all follow each other.

Reuters is reporting NextMedia's first lien debt and general unsecured claims will be paid in full while second lien debt will be converted into 95% equity in the reorganized company – reportedly according to a legal filing.

And once again you're hearing the usual – this will have no impact on everyday operations and if that’s what you want to believe, Santa Claus will be coming down your chimney in a few nights.

Of course everything will change.

These are piranhas – they prey on growth industries, feed their borrowers by reissuing loans at ever increasing rates of interest – loans that would make Tony Soprano’s family envious.

And as you heard in the Citadel bankruptcy you get the usual assurances that there will be no more cutbacks and I finally believe them – but I also believe in the Fairy God Mother (full disclosure).

Of course there will be more layoffs.

Think about it. How do you suspect the equity holders who are taking this hair cut are going to be made whole again?

Cut. Cut. Cut.

The debt will be all but gone. The free cash flow (even in a recession) will be significant. With salaries being reduced, what is there left to burden this businesses’ financial bottom line?

See why bankruptcy is the in-Christmas present this year?

Forget coal. This is pure gold. (And the consolidators deserve coal for what they’ve done to the radio industry).

If you’d like a little bullshit with your holiday, look at this quote in All Access from NextMedia President and CEO Steve Dinetz:

“As a result of this reorganization, we will bolster our financial position considerably, enhancing our ability to invest in our operations and execute our strategy.”

The hell you will.

Over your dead body. That windfall profit that is coming from erasing debt service goes directly to your new bosses, the equity owner/managers.

What a crock.

Dinetz continues:

“Over the past 18 months we have taken steps to reduce costs and increase efficiencies across our operations, while continuing to invest in our assets, content, sales, marketing and customer service. Today’s action puts us well ahead of the process in preparing NextMedia to fully capitalize on the recovery in the nation’s out-of-home advertising markets.”

Bullshit alert:

Look at the first line where Dinetz talks about how he reduced costs at the same time he continued to invest in “our” assets. Forgive me here but how do you reduce costs while spending investment money you don’t have?

Another crock.

Okay, we’re onto them now.

Rule #1 -- Bankruptcy is good especially when they get to define what the meaning of bankrupt is.

Rule #2 -- Bankruptcy means never having to say you’re sorry for ruining your industry, company, programming or your employees’ lives.

Rule #3 -- Bankruptcy means more hiring and no more firing (stop that laughing!!).

Rule #4 -- New owners who traded debt for equity appreciate the many contributions made by the CEOs who have shipwrecked their radio groups in the first place so they are rewarded with new contracts – that is, Fagreed Suleman stays on at Citadel and Dinetz is staying on at NextMedia.

Are you ready for a quiz?

If you didn’t like 2009, you won’t like 2010 any better as the main feature will be Revenge of the Equity Holders.

So, let’s look ahead and call out what is likely to happen next:

1. Most radio groups have two choices in the year ahead -- bankruptcy or refinancing debt with onerous terms. That is 9% or more in an environment where Treasury Bills are near zero. Companies like Entercom may avoid bankruptcy but they won’t avoid 9% interest to keep the wolf away from the door.

2. Regent could be toast within weeks. They have been saying their long goodbye to solvency.

3. Clear Channel has good PR people but bad karma – they are choking on the $17 billion in debt Lee and Bain were forced (by threat of legal action) to take on when they couldn’t walk away from their offer to take The Evil Empire private. To put it in perspective, $17 billion is far more than the radio industry generates in revenue every year together. There is talk of a Clear Channel default since they tried to use their outdoor company to refi debt. Lawyers are slobbering – that’s a bad sign. Avoid slobbering lawyers. By the way, the refi in question was for onerous terms like the ones I described in number 1 (above).

4. Emmis lost its European stations and is heavily impacted by what happens in three major markets -- New York, Chicago and LA. They’ve cut costs. Cut staff. They are basically a good bunch of people who may not survive without a break or more high interest loans.

5. Cumulus is not mentioned lately because they have almost a year to come up with a solution for their bad management. They can always buy more debt at high interest rates as Harvard educated CEO Lew Dickey likes to do or trade debt for equity as Citadel and NextMedia will do. The Dickeys are on their own self-destruct course. An avatar could run the company better at this point. Cumulus will have to pay the piper, too – even if the economy comes back – that’s how much Lew Dickey and his Mean Management has run this company into the ground.

There could be other victims sooner.

Once money dries up there are few options left.

But what I am about to say is important.

It isn’t the recession that is driving these radio groups into bankruptcy. It’s too much debt from day one – the day the assets were purchased by the consolidators. The high debt apparently didn’t scare anyone back then because the economy was booming, but over the years debt had to be refinanced at even higher interest rates.

It was only a matter of time.

And now the time has come.

Oh, one more thing.

These bankrupt and over leveraged radio operators can’t really become growth businesses again. True, they can cut costs and repay their equity holders for all the money they lost, but they have no hope being growth operators.

Not without new media – without podcasting, webcasting, mobile strategies in a year when Apple is about to change the rules again with the introduction of the Apple tablet.

So, I’m putting my money where my mouth is – in the hybrid of traditional broadcasting and new media that most companies don’t understand and still don’t budget for.

When my children were young they used to have one or two requests for Santa that they absolutely had to have. I ran all over the place trying to find these gifts – I’m sure you know exactly what I mean. Then on Christmas day they would open them with great excitement and play with them right away. As they grew up they used to say it was the unexpected presents – the surprises – that won the day.

My friends, the unexpected present in all of this is the digital future that we are most qualified to engage. Even if you won’t come to my Media Solutions Lab, just read the kinds of positive careers that are ahead for those willing to invest in themselves and grow new skill sets.

Farid, Lew, Hogan and the lemmings that look to them for a way out are not just bankrupt corporately but in skills to extend their careers to the digital beyond.

In this regard, you may have the advance in 2010.

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