Yesterday’s pre-packaged bankruptcy filing by radio broadcaster Regent Communications, adding to a growing list of broadcasters who have taken this route in the past several quarters, prompts today’s blog:

*First, regarding Regent: this is especially unfortunate, as this is not a bankruptcy caused by private equity trying to put as much debt as possible on a company while squeezing out every last dividend.  It is a company that does good job of operating small/medium-sized markets with history of keeping a conservative balance sheet, up until its 2007 Buffalo acquisition.  Bad timing, but this has been company commited to operations and hopefully will emerge from bankruptcy successfully. 

*Do the broadcasting bankruptcies bring opportunities for underleveraged or startup broadcasters to purchase the bankrupt companies’ stations at discount price?  Possibly down the road, but not necessarily near-term.  In many cases, the bankruptcy is partially the result of an inability to sell properties in a deleveraging transaction prior to the filing (certainly most companies that filed bankruptcy tried at some point along the way to sell assets).  Generally, offers were received at lower EBITDA multiples than the troubled companies’ existing leverage, which didn’t help.  Notice that while there has been little transaction activity, the deals that have happened have been “stick” deals (little or no EBITDA), so the seller was able to reduce leverage. 

The companies that have filed bankruptcy now have reduced debt loads and presumably are capable of servicing the new level.  The new owners are the prior debt holders, who are certainly not long-term broadcast owners, but are generally seeking a better time to exit than present.   Assuming the advertising rebound continues through 2010 and growth continues in following year, look for these “creditor turned owner” companies to sell entire companies (as opposed to individual assets) upon this market upturn.

This is likely a good time for underleveraged companies and startups to buy properties at attractive prices, but not necessarily from the companies that have filed bankruptcy.

*Many in broadcasting industries express surprise (disbelief?) that many of the management teams that made the decisions that set up their companies for bankruptcy are still the management team post-bankruptcy.   This is reflective of the advertising downturn being generally viewed by investors as systemic, not necessarily attributable to the individual operators themselves.  The companies that filed were often the ones that had misfortune of being too leveraged when music stopped.  While I have heard of some operators being up in 2009 in certain markets, nobody I am aware of had a group multiple markets up in radio/tv.  So, the debtholders/new owners decide to take path of lesser resistance by keeping existing team.  However, I wouldn’t expect much continued patience if industry is up and bankrupt companies’ performance doesn’t rebound in line.

*How many more broadcasting bankruptcies will be announced?  Assuming continued upward path of revenues, possibly a couple more, but we are now near the end of the list I believe.  Now that q1 2o10 looks to be positive (year over year) for most broadcasters, and q2 seems to also be pacing up, the debt holders are more able to restructure amendments with reasonable terms.  During 2010, there seemed no end in sight to declines, so the banks holding debt of broadcasters that were very underwater determined that zero chance of recovery existed and refused to offer amendments, essentially forcing companies to file.  At this point, there are couple broadcasters that still fit this description, but most should either avoid amendments or have ability to cut reasonable deal with debtholders to avoid bankruptcy. 

*Obviously, it is not good news for the broadcasting industry that these debt holders are now controlling several significant television and radio companies.  Investment in operations of these companies will be minimal, as the financial players will maintain/hold properties until better time to sell, as opposed to taking action and associated expense needed to stay competitive with evolving broadcasting business models (online/internet).    Winners in broadcasting in coming years will be those companies that have talent and financial flexibility to invest in on-air product and new technology to take advantage of “frozen” status of many of their broadcasting peers.

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