A reader recently tipped me off to trends in the finance of terrestrial radio as an analogue to what I’ve been tracking in musical instrument retail through the Guitar Center saga. Through consolidation and Byzantine financial structures, companies such as IHeartMedia and Cumulus have been dragging out the inevitable failure of a certain type of Wall Street business model.
The two largest radio station owners in the United States—iHeartMedia (formerly Clear Channel) and Cumulus Media—both have billions in debt, are both looking to restructure that debt to avoid bankruptcy or default, and are both dealing with dwindling profitability. Even when the companies are able to post strong quarterly earnings, the interest on the debt they owe and impending payoff dates make it virtually impossible to see a way forward for the companies. It appears they will never be able to pay down they’re debt. So they have resorted to endlessly restructuring their debt to put off due dates indefinitely.
Remember – the only way this game works is if pension funds continue to require “high-risk” investments to achieve alpha, that fast growth needed to fulfill unreasonable expectations.
When “high-risk” turns into actual high-risk, the structures are much more difficult to maintain.