Creditors Will Face FCC Scrutiny In Cumulus Bankruptcy Plan.

A federal judge has approved procedures designed to ensure Cumulus Media’s Chapter 11 restructuring complies with federal broadcast ownership rules as creditors prepare to receive equity in the reorganized company. Bankruptcy Judge Alfredo Pérez has authorized a process requiring lenders and other creditors who may receive stock in the reorganized broadcaster to disclose detailed ownership information to verify compliance with Federal Communications Commission regulations.

Because the restructuring plan will distribute stock in the reorganized company to creditors — which could include offshore investment funds — Cumulus expects to provide detailed ownership disclosures so the FCC can evaluate compliance with the rules that generally limit foreign investors from owning more than 25% of the voting or equity interests in a company that controls broadcast licenses.

Cumulus last week filed a Chapter 11 reorganization plan that will eliminate roughly $592 million of debt and reduce annual cash interest costs by about $49 million. Lenders have also agreed to provide up to $100 million to support operations during and after the restructuring process. In connection with the bankruptcy, potential equity holders will be required to submit a foreign ownership certification identifying the extent to which their interests are held by non-U.S. investors.

Helping to speed the review process is the fact that the FCC in 2020 said Cumulus could be up to 100% foreign owned as part of its earlier bankruptcy reorganization. The Commission also said that whenever an investor owned more than 5% of the company, it had to get FCC approval. That is where the added scrutiny comes as part of its latest bankruptcy.

The bankruptcy plan must also address FCC media ownership rules governing who can hold significant stakes in a broadcast licensee. Under FCC regulations, investors that own 5% or more of the voting equity of a company controlling broadcast stations may be considered to hold an “attributable” interest and must be identified in FCC ownership filings. It means creditors will need to certify that their holdings would not create over-the-limit combinations with other media properties they already own.

Cumulus says creditors receiving equity in the reorganized company may also initially be limited to holding no more than 4.99% of the new voting stock unless the FCC approves their ownership stake. If those conditions are not met, creditors will receive no more than 4.99% of the voting stock initially, with the remainder of their recovery delivered through other securities such as non-voting stock or warrants.

The judge’s order establishes procedures requiring certain creditors to submit an “Ownership Certification” detailing their media holdings and the extent of any foreign ownership in their organizations. The disclosures will allow Cumulus to prepare regulatory filings seeking FCC approval for the post-bankruptcy ownership structure and to determine how equity in the reorganized company can be distributed to creditors.

Court filings show the company intends to request a limited waiver of certain FCC rules tied to foreign ownership restrictions, giving it time to secure formal regulatory approval after completing its restructuring. Cumulus tells the court that the waiver request will allow it to emerge from Chapter 11 without waiting for the FCC to complete its review of a new foreign ownership petition.

The company says it plans to later seek a declaratory ruling that would authorize any foreign ownership interests exceeding existing regulatory thresholds. For now, the company does not expect it will need to spin-off any stations to comply with ownership caps. It currently operates 394 radio stations across 84 markets.