(Bloomberg) -- IHeartMedia Inc.’s hard-won bankruptcy accord allows lenders to re-open the deal if bids emerge from a buyer like Liberty Media Corp. -- a development that some senior creditors would welcome, according to people with knowledge of the process.
Those creditors fought hard for language in the restructuring support agreement that lets them continue to explore “consistent alternative proposals,” said the people, who asked not to be identified because the negotiations are private. That clause was heavily contested in talks before iHeart filed for court protection, a company lawyer said during a bankruptcy hearing on Thursday in Houston.
The group is open to options including a higher offer from Liberty or other strategic buyers who may be attracted by Liberty’s bid for iHeart, the people said. Liberty Chief Executive Officer Greg Maffei had publicly outlined an alternative bankruptcy plan in which Liberty would acquire 40 percent of the new equity, and has said he’s willing to consider taking a larger stake.
No formal talks with Liberty are underway, according to the people. French advertising company JCDecaux SA has also expressed future interest in iHeart’s healthy billboard subsidiary, Clear Channel Outdoor Holdings.
Wendy Goldberg, a spokeswoman for San Antonio, Texas-based iHeart, declined to comment. Representatives for Liberty and for the creditor group’s advisers, investment bank PJT Partners Inc. and law firm Jones Day, didn’t provide comments. IHeart, the biggest U.S. radio-station owner, filed for Chapter 11 court protection this week with a pre-arranged plan to cut its $20 billion debt load.
The creditor group includes holders of the term loan and priority-guarantee notes. The bankruptcy plan allows them to conduct private talks with Liberty and any other bidders, without including the company, its private equity sponsors or junior creditors, according to Bloomberg Intelligence analyst Philip Brendel.
“Usually, restructuring support agreements prohibit doing another transaction,” Brendel said. This accord “even allows the senior creditors to keep a potential alternative transaction proponent confidential from the company.” There’s also language that would keep junior creditors from being able to hinder a deal with a strategic buyer, as long as they get at least as much compensation as they’re being offered in the current deal, Brendel said.
Liberty, controlled by billionaire John Malone, had been buying up iHeart debt in recent months with an eye on getting control of iHeart’s radio business after it reorganizes in bankruptcy. In a late bid to play the role of white knight, Liberty and SiriusXM offered to inject $1.16 billion of new money and provide a loan to keep iHeart in business through the bankruptcy process.
The offer was put aside, with negotiators already close on a plan that didn’t need any debtor-in-possession loans. Those tend to be costly and probably would give a lender -- in this case Liberty -- top priority in bankruptcy court. IHeart said in a statement accompanying its filing that it has enough cash on hand to keep operating without a new loan.
That doesn’t mean investors have heard the last of Liberty. Maffei told attendees at an industry conference earlier this month there are “enormous” synergies for the ailing iHeart with two other Malone investments -- the majority-owned satellite radio giant SiriusXM Holdings Inc. and Pandora Media Inc., the online music company where Liberty took a minority position last year.
“With the advantages we can bring to the table, we think we can perhaps reduce some of the risks that are inherent in the business,” Maffei said during an earnings call this month. Liberty has also “expressed a willingness and a desire to go higher” with its proposed stake in iHeart in talks with the senior creditor group, he said at the conference.
Maffei sees opportunities to cross-promote personalities at the two companies. Howard Stern is the biggest name at SiriusXM, while iHeart has a deal with syndicated radio personality Elvis Duran, among others. IHeart and Pandora, meanwhile, could share advertising technology and sales forces, Maffei said. It doesn’t make sense to consolidate all three companies yet, Maffei said, though working with Pandora and Sirius could help iHeart’s struggling radio stations to adapt. He also singled out iHeart’s sales force as a valuable asset that’s larger than those at Pandora and Sirius.
Asked if Sirius or Liberty ultimately will need to control Pandora and iHeart to get the benefits envisioned, Maffei said, “There are things between, in a management services agreement, that allow you to get a lot of it. But, you know, over time does the sum of it require control? We will see.”
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