Alpha Media is poised to become the first radio company to be majority-owned by foreign investors as it takes the next step in its post-bankruptcy reorganization. The company estimates that if its new lineup of equity holders exercise all of their pending warrants as part of what was a debt-for-equity swap, Alpha foreign ownership will top 70%. That number could grow even higher. Alpha is now asking the Federal Communications Commission to allow it to become 100% owned by overseas entities. There are no immediate plans to go that high, according to paperwork filed with the FCC, but the company says that would give it the “flexibility” needed to bring on additional foreign investors in the future.
The move is the second act to Alpha’s bankruptcy reorganization, a process it completed in July. As part of the first act of the pre-arranged process, several investors agreed to convert outstanding debt into equity holdings. Many took that in the form of warrants – a sort of financial IOU – to help the company get through the process and remain under the current 25% cap on foreign ownership. But with last month’s exit from chapter 11, that part of the reorganization has been finalized and investors are looking to act two. If it goes as planned, Alpha expects more than 91% of warrant holders would like to turn those financial IOUs into equity shares.
In the second step of the reorganization, Alpha tells the FCC that two groups with foreign sponsors would take sizable equity positions in the company. Alpha says Intermediate Capital Group would own a 39.1% stake in the company. It has ties to the U.K., Cayman Islands, and the British Virgin Islands. Separately, BigSur Capital Partners would hold a 6.3% stake. It has ties to the Bahamas, Netherlands, British Virgin Islands, Cayman Islands, and New Zealand.
The remainder of the equity in Alpha would be held by MetLife Private Equity Holdings, whose current 41.7% equity stake would shrink to 23.6%; Florida Growth Fund, whose equity would be cut from 27.4% to 7.9%; and Hamilton Lane, which would see its stake reduced from 21.6% to 7.9%. And while each would hold less of Alpha’s equity, they would still contribute to what Alpha describes as a “modest” amount of foreign ownership.
The result, says Alpha, would be its combined foreign ownership would become more than 70%. But the company insists decision-making won’t suddenly be done in London, Amsterdam or Auckland. Even with the foreign investment, Alpha says the company that owns 202 stations in 44 markets would remain “under the control of U.S. citizens” even though they would not be the owners. The company also points out that the countries from which the investors come from do not pose any national security or law enforcement risks.
“As Alpha seeks to implement its post-restructuring business operations and continue its efforts to offer enhanced service to the public, flexibility in accessing capital is essential, particularly as radio emerges from the downturn caused by the COVID-19 pandemic,” says Alpha in a filing with the FCC. It says the foreign investment will enable Alpha to “enhance” its programming and “make the company stronger and even more competitive” by giving it the financial resources to invest in digital.
Foreign Ownership Trend
Even as Alpha Media will potentially have the highest level of foreign ownership among radio’s biggest group owners, it is not the only company seeking to tap into overseas investment markets. During the past several years companies including Cumulus Media, iHeartMedia, Spanish Broadcasting System, and Univision Communications have also taken steps to do so.
The FCC has increasingly been more open to waiving broadcasters past the caps on foreign ownership for radio that date to the 1930s. In an effort to simplify that practice, the FCC voted in 2016 to streamline the process and standardize the review procedure for deals that proposed going past the 25% foreign ownership benchmark.
The FCC is currently reviewing a request by SBS to take its foreign ownership up to as high as 49.99%. It earlier cleared Cumulus to go up to 100%, and did the same for iHeart and the new owners of Univision Communications.
Those cases are cited by Alpha Media in its request to follow their lead, arguing the maneuver takes on “added significance” when a company is exiting bankruptcy when the conversion of debt to equity is commonplace in restructurings. It says it allows such companies “to emerge in a stronger economic position.”