itadel Is to Hand Control to Its Lenders

By MIKE SPECTOR And SARAH MCBRIDE Citadel Broadcasting Corp., the third-largest radio broadcaster in the U.S., is preparing to file for bankruptcy by the end of the year, according to people familiar with the matter. Citadel's long-expected move is yet another reminder of the travails facing media companies, which are up against stiff competition and shifts in consumer habits. Advertising revenues have plunged for newspapers, radio broadcasters and television stations. For radio companies, overall ad revenue is expected to drop 19% this year, according to research firm BIA/Kelsey. Under the deal presented to lenders this week, Citadel would file a "prearranged" Chapter 11 bankruptcy plan supported by many creditors. Lenders owed $2 billion would swap a substantial amount of that debt for around 99.5% of the equity in a reorganized company, these people said. The restructuring would give the group of some 90 lenders control of Citadel. Current shareholders, as in most bankruptcies, would be wiped out. The lenders have until Tuesday to sign the deal, which would cut Citadel's debt load to about $760 million, these people said. A group of lenders holding about 40% of the debt —including J.P. Morgan Chase & Co. and General Electric Co.'s GE Capital—have indicated they support the reorganization, the people said. The company still needs the support of holders of two-thirds of its debt outstanding, as well as a majority of individual debt holders, to receive final approval of the plan in bankruptcy court. A person familiar with the situation cautioned that the company could delay its bankruptcy filing depending on the amount of creditor support it receives in coming days. Citadel Chief Executive Farid Suleman is likely to remain at the helm after the bankruptcy, people familiar with the situation said. Citadel representatives didn't respond to requests for comment on the company's restructuring negotiations and Mr. Suleman declined to comment on any bankruptcy talks. The company's shares currently trade under 5 cents each on over-the-counter markets, giving it a market capitalization of under $12 million. In 2004, company shares traded above $16 each, giving the Las Vegas-based company about a $2.2 billion market value. Some media companies have tapped a booming high-yield bond market to improve their financial pictures. Clear Channel Communications Inc.'s outdoor unit, which sells advertising on billboards, for example, announced Wednesday night it is raising $750 million in an offering of senior notes, which will help its parent pay down part of its massive debt load. During boom times, radio broadcasters took on loads of debt, reckoning their steady cash flows could support future obligations. Clear Channel took on more than $17 billion to go private last year. Emmis Communications Corp. received amendments on debt agreements twice this year, and Regent Communications Inc. fell into credit-facility default earlier this year after auditors questioned whether it could avoid bankruptcy. Citadel landed in trouble after loading up on debt to fund its acquisition of Walt Disney Co.'s ABC Radio stations in 2006. At the time, radio was a $20 billion-a-year industry. The ABC stations, chiefly in large cities compared to the medium-sized markets in which Citadel specialized, offered the company a chance to vault onto a much bigger playing field. But 2006 turned out to be the peak, leaving Citadel saddled with debt in a business that began shrinking rapidly. "If I knew the economy was heading to where it was, I would have sold, not bought," Mr. Suleman said. On top of that, Citadel also lost two outsized radio personalities: Paul Harvey died earlier this year and Sean Hannity, the conservative talk-show host viewed as second only to Rush Limbaugh, defected last year to rival Premiere Radio Networks, part of Clear Channel. New conditions on Citadel's debt are scheduled to kick in Jan. 15. The company has said it wouldn't be able to meet the January deadline for the new debt terms, which require Citadel to have $150 million in available cash, among other things. The company currently has just about $24 million in cash. In recent months, Citadel tapped law firm Kirkland & Ellis LLP and investment bank Lazard Ltd. for restructuring advice. As bad as things are, Citadel has outpaced rivals this year. Its revenue through the end of September dropped 14.7%. Clear Channel's revenue, meanwhile, slid 19.2%, while CBS Radio decreased 23.2%. Some debt holders, including hedge funds registered offshore, will receive special warrants in lieu of new stock as part of the restructuring. That's designed to avoid running afoul of regulatory rules that limit concentrated ownership of media companies.