iHeartMedia's Legal Win Against Creditors Upheld
iHeartMedia Inc. won another legal round against creditors that had tried to declare a default on billions of dollars of the media giant's debt.
An appeals court in San Antonio, affirmed Wednesday that a disputed intercompany stock transfer made by iHeart, formerly known as Clear Channel Communications Inc., was permitted under the terms of its loan agreements.
The decision upholds a lower court's ruling that rejected claims by a group of creditors holding more than $3 billion in debt that the 2015 equity transfer had triggered an event of default.
"We're pleased with the court's decision," an iHeart spokeswoman said. Spokesmen for creditor plaintiffs Och-Ziff Capital Management Group LLC and Franklin Resources Inc. didn't immediately respond.
The private-equity owned media company has been at loggerheads for more than a year with bondholders led by Franklin over whether and how to restructure a $15.5 billion debt load, much of it taken on in a 2006 leveraged buyout by Thomas H. Lee Partners and Bain Capital. Credit rating firms have downgraded iHeart deep into junk territory, warning that its legacy debt had become unsustainable.
iHeart is headed by Bob Pittman, co-founder of MTV, and is the biggest radio station operator in the U.S. It is one of several companies taken private in boom-era buyouts that has struggled to grow into its capital structure over time. Other buyout targets, such as Caesars Entertainment Corp. and Energy Future Holdings Corp., have used chapter 11 protection to dial back their debt burdens.
At issue in the Texas court battle is whether the transfer of shares in Clear Channel Outdoor Holdings, a publicly traded iHeart subsidiary, to a separate unrestricted unit violated the terms of the company's so-called priority guarantee notes.
Creditors argued in court that iHeart "gave away" the shares, which were part of the collateral package securing their debt, by shipping them to unrestricted subsidiary Broader Media LLC and receiving nothing in return.
iHeart countered that nothing in the lending agreement barred such a transfer and sued the lenders pre-emptively in March 2016 for a court order preventing them from declaring a default and potentially forcing a bankruptcy.
A Bexar County judge ruled in the company's favor in May 2016, and the appeals court agreed Wednesday that iHeart didn't need a profit motive to justify the stock contribution. The plaintiffs have the option of appealing to the Texas Supreme Court.
Soma Biswas contributed to this article.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
October 11, 2017 12:20 ET (16:20 GMT)