Analysts: Audacy Bankruptcy Doesn't Indicate Radio Downturn

Radio broadcaster Audacy’s bankruptcy restructuring won't signal a huge shift for radio but could discourage outside investment in the medium, industry analysts and media brokers said in interviews this week. Audacy’s bankruptcy is expected to proceed much like those of Cumulus and iHeartMedia, they added. “The industry has been through this before,” Tideline Partners media broker Gregory Guy said. Audacy has 230 radio stations in 46 markets and is the country’s second-largest radio group.

Audacy announced on Sunday that it had begun the Chapter 11 process in U.S. Bankruptcy Court for the Southern District of Texas (docket No. 24-90004) (see 2401080056). The restructuring will reduce Audacy’s funded debt from approximately $1.9 billion to around $350 million, with debt holders receiving equity, the company said. A hearing on the plan is expected in February, with media analysts telling us they believe the matter will proceed like past radio bankruptcies. Accordingly, they see Audacy emerging as a functional company with less leverage, retaining the bulk of its stations. Audacy didn’t comment.

The bankruptcy was widely expected for a number of years, analysts told us. Audacy has long been seen as having difficulty absorbing its purchase of CBS radio stations. The COVID-19 pandemic’s effects on advertising exacerbated that issue, said Nicole Ovadia, BIA Advisory Services vice president-forecasting and analysis. Audacy -- then called Entercom -- bought CBS Radio in 2017, taking on a great deal of debt in the process. It planned to pay down the debt via growth in the radio industry, but that didn’t happen, due to a combination of factors including COVID-19 and increasing competition, said BIA Managing Director Rick Ducey. “All of this is related to paying too much for those CBS stations,” Ovadia said. “This bankruptcy is all on paper and really has nothing to do with the industry.” Added Guy: The purchase was “the last big radio transaction” and put the company in a uniquely vulnerable position in radio.

The radio industry’s revenue has been forecast as “flat to declining” for a few years, but it's still a predictable and dependable business, Ducey said. That predictability is one reason why keeping Audacy a going concern rather than selling it off piecemeal is an attractive option for the company’s debtors, Ducey added. “The margins are getting compressed [in radio], but they're margins a lot of companies would die to have,” he said. Ducey compared radio to the Yellow Pages, which he said also drew private equity investment as it declined because it had predictable revenue. Radio broadcasters are expecting an influx of ad revenue from the 2024 presidential campaign, but excluding political ad spending, the industry's revenue forecast remains flat, Ovadia said.

Audacy’s bankruptcy isn’t likely to drag down other stations directly, but could make infusions of new capital into the radio industry difficult, Guy said. It doesn’t look good to would-be outside investors when the second-largest broadcaster is in chapter 11, he said. Radio was in a similar situation during the Cumulus and iHeart bankruptcies. Guy and Ovadia don’t see large radio transactions as very likely in 2024, partially due to the industry’s current outlook but also high interest rates. “Deals are hard to get done. Money is expensive,” Ovadia said.