Broadcasting Giant Citadel to File for Bankruptcy

Submitted by Jen Jones on Sun, 12/13/2009 - 12:39pm

Broadcasting Giant Citadel to File for Bankruptcy

The nation’s third largest radio broadcasting company is preparing to hand over the reins of the organization to its creditors as part of a chapter 11 bankruptcy plan. The Citadel Broadcasting Corporation took on a rather sizable debt in its efforts to acquire Walt Disney Company’s ABC radio station (but not ESPN or Radio Disney) back in 2006. With ad revenue expected to drop even further for radio broadcasting companies the outlook does not appear to be improving. Poor economic times lead to a lack of sufficient advertising revenue to allow the company to manage its debt appropriately hence the pending bankruptcy filing.

As other forms of media continue to take off, i.e. the internet, subscription based satellite radio service, etc, the task of remaining viable becomes even harder for the traditional radio station meaning it would not be surprising to see other radio broadcast companies suffer similar hardships.

For this plan to work the lenders would have to agree to the plan and sign off prior to the December 15 deadline. Two of the majority holders, JP Morgan Chase and Company and GE Capital, have already signed off. It takes at least two thirds of all lenders for a plan to e approved.

In the process a large percentage of the company’s debt will be erased. Currently Citadel owes close to $2 billion; after the plan is approved by the court that number will be cut down to $760 million. The catch in this prearranged plan- all of the shareholders of Citadel will lose stock in the company. While the current head of the company, Farid Suleman, would remain in charge, the company would almost wholly be owned by its creditors.

A chapter 11 bankruptcy plan is a remedy available to any form of business under United States bankruptcy code. While some debt is discharged it is often used as a means of reorganizing the company’s assets versus its debt. Often the original company will no longer have ownership, or at least controlling ownership, but will often be left in charge as the trustee or debtor in possession.

The prearranged, pre-approved plan will hopefully expedite the bankruptcy process and provide the company with a quick recovery. The thought would be that since the Citadel executives can show the court that the company's creditors have already approved the plan, there would be no reason for the court to disapprove.

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