Can Citadel Broadcasting survive?

[Garrett Wollman]

<<On Sat, 01 Mar 2008 12:39:52 -0500, "Doug Drown" <revdoug1@verizon.net> said:

> And if ABC saw it coming, what keeps Clear Channel afloat?  (Yes, I know 
> they have sold/are selling a bunch of stations.)  What keeps CBS Radio 
> afloat?  Or Cumulus?

I think in large part, the problems of Citadel/ABC Radio are specific
to that group and to the way Citadel had been built.

How these groups were assembled has a large impact on their balance
sheets.  Citadel, you will recall, was a public company ten years ago,
then was taken private in a 2001 leveraged buyout, then went public
again in 2004.  The new, higher-debt Citadel then merged the new
higher-debt ABC Radio upon its spin-off from Disney.

To quote from Citadel's SEC form 10-K (filed yesterday):

> In January 2001, Citadel Broadcasting Corporation, a Delaware
> corporation, was formed by affiliates of Forstmann Little & Co. and
> acquired substantially all of the outstanding common stock of our
> predecessor company in a leveraged buyout transaction. [...]

> On February 6, 2006, the Company and Alphabet Acquisition Corp., a
> wholly-owned subsidiary of the Company ("Merger Sub"), entered into
> an Agreement and Plan of Merger with The Walt Disney Company
> ("TWDC") and ABC Radio Holdings, Inc., formerly known as ABC Chicago
> FM Radio, Inc. ("ABC Radio"), a Delaware corporation and
> wholly-owned subsidiary of TWDC (the "Agreement and Plan of
> Merger"). [...]

> Prior to June 12, 2007, pursuant to the Separation Agreement by and
> between TWDC and ABC Radio, dated as of February 6, 2006 and amended
> on November 19, 2006 (the "Separation Agreement"), TWDC consummated
> a series of transactions [...]. In connection with those
> transactions, TWDC or one of its affiliates retained cash from the
> proceeds of debt incurred by ABC Radio on June 5, 2007 in the amount
> of $1.35 billion (the "ABC Radio Debt"). [...]

> Also, on June 12, 2007, to effectuate the Merger, the Company
> entered into a new credit agreement [...] with several lenders to
> provide debt financing to the Company in connection with the payment
> of the special distribution on June 12, 2007 immediately prior to
> the closing in the amount of $2.4631 per share to all pre-Merger
> holders of record of Company common stock as of June 8, 2007 (the
> "Special Distribution"), the refinancing of Citadel Broadcasting"s
> existing senior credit facility, the refinancing of the ABC Radio
> Debt and the completion of the Merger.

This is all from the introduction.  According to a table later in the
filing, the future liability from this debt amounts to nearly $4
billion.  Later, in the MD&A, the Citadel management writes:

> Operating loss increased approximately $1,380.6 million for the year
> ended December 31, 2007 from $35.2 million for the year ended
> December 31, 2006. The increased loss in 2007 is primarily the
> result of an increase in asset impairment and disposal charges of
> approximately $1,438.4 million. The asset impairment and disposal
> charges are related to a continued deterioration in the radio
> marketplace, the operating results of the ABC Radio Business and the
> Company?s other radio stations and to a decline in the Company?s
> stock price from the date of the Merger through December 31, 2007

Citadel's position is even worse than appears at first glance (and at
first glance through the 10-K makes it look very, very bad), because
as a part of the ABC merger, Citadel agreed to refrain from engaging
in certain transactions -- including substantial asset sales -- that
would affect the tax-free status (to Disney) of the ABC spin-off.

-GAWollman