With Audacy’s stock now trading over the counter after the New York Stock Exchange began proceedings to delist it, and with shareholders set to vote Wednesday on a reverse stock split, the company is being closely scrutinized. Wall Street analysts say the key to Audacy weathering its fiscal storm is getting an extension on its term loan that comes due next year. Pushing the due date on the $632.4 million it owes its first lien lenders to July 2026 would give the company some breathing room.
Just as important, analysts say Audacy needs to convince its first lien lenders to amend the terms of its term loan, which currently stipulates that its net debt can’t be more than four times its total earnings during the previous 12 months. If that happens, Audacy will have tripped the loan covenant, putting it into a technical default.
Based on first quarter financial results and second quarter pacings Audacy reported May 10, B. Riley Securities Equity Research analyst Dan Day expects Audacy to trip that covenant when its Q2 results are released. The advertising downturn pushed its Q1 revenues down 5.7%, while total operating expenses rose 1.9% and earnings plunged 86%. Audacy has said it expects Q2 revenue to decline in the mid- to upper-single digits. With revenues down and costs up, “it's obvious to everybody that's going to happen,” says Day, whose firm dropped coverage of Audacy on Friday after NYSE suspended trading of the company’s stock.
While tripping the term loan covenant would put Audacy into a technical default, it’s questionable whether its first lien lenders would want to put the company into a messy chapter 11 bankruptcy in today’s economic environment. Amending the covenant – most likely for a token amount of money – would be easier. That, in tandem with extending the term loan maturity date to July 2026, would give Audacy another two years to prove its digital transformation can produce the results it has promised investors.
Lenders Likely To ‘Play Ball’ With Field Family
Day doesn’t believe the first lien lenders have any incentive to push Audacy into chapter 11 bankruptcy. “I think they have every incentive to play ball right now with the Field family,” he says. “Audacy isn’t going to run out of cash, they can still sell some assets. I think the most likely scenario is you get the debt pushed out to 2026 and you get the covenant amendment – whatever they have to give up in exchange for that. And then you have a little more breathing room to prove out this digital transformation story you're trying to sell people on.”
Factor in increased revenue from the 2024 elections, an anticipated recovery in ad spend and Audacy’s earnings could bounce back. However, if the company is in the same financial pickle in 2026 that it currently faces, the banks are unlikely to offer another extension. “They get that extension to 2026 and that’s it. They’re not getting another one,” Day predicts. “They need to prove it out and then they need to get that debt refinanced. And the only way that happens is if they're successful in executing on everything they've said they can do.”
None of the above, however, would address the issue of the $1 billion in bonds Audacy owes its second lien lenders. That includes $460 million that matures in 2027 and $540 million due in 2029.
“There’s no way that’s getting refinanced. Something has to give with those eventually,” Day says. A financial restructuring, either in or out of court, in which the bondholders agree to a debt-for-equity swap is a likely scenario, he believes. In this case, the bondholders would end up as the equity owners of the new company, making the first lien lenders the only debt holders. Noble Capital Director of Research Michael Kupinski also sees this as the likely scenario for Audacy. “I see no way out, outside of a financial restructuring,” he told Inside Radio.
Business As Usual
In the meantime, analysts peg Audacy’s chances of succeeding in its appeal of the NYSE move to delist its stock as slim to none. The company’s plans to execute a reverse stock split aren’t seen as a viable solution, either. Says Kupinski, “A reverse stock split does not resolve the issues at the company. The company is staring at a prospective financial restructuring.”
For now, CEO David Field says it’s business as usual. “Our radio stations, digital platforms, podcasts, and all other products and services will continue operating normally,” he said last week. “We continue to execute a robust action plan to emerge healthy from current conditions,” he continued, adding that the company had $124 million in liquidity as of March 31, 2023.