Revitalization Partners (RP) continues to see an increase in the number of inquiries and activity related to receiverships.
We thought we would share another story as part of our ongoing series “Tales from the Receivership Trail” reflecting our experience serving as court-appointed receivers.
RP was referred to a company that owned and operated over thirty radio stations in Washington, Oregon, Idaho and Alaska.
The company had taken on significant debt to finance multiple acquisitions related to building a regionally based radio station portfolio.
INCREASED DEBT & DIMINISHING CASH FLOW …
Subsequent to making these acquisitions, the economy experienced a downturn and the company’s revenue declined.
While the company was generating marginal cash flow, it was not nearly sufficient to make the scheduled debt payments when due.
Over the course of a number of months, the lenders became concerned about the delay in repayments and were attempting to force the company to sell off its assets and self-liquidate.
ASSIGNMENT FOR THE BENEFIT OF CREDITORS …
After meeting with the board of directors and discussing options to move forward, the board of directors decided to execute an Assignment for the Benefit of Creditors and asked RP to serve as the General Receiver subsequent to court approval.
RP immediately took charge of the company and determined that it was feasible for the company to go forward as an operating company and that operations could be improved to a level that would generate additional cash flow.
RP developed and implemented a plan to improve operations and also to reduce the cost of operating the business. Additionally, RP put in place an individual to serve as the general manager who would report to RP during the receivership process.
UNIQUE ASPECTS OF A RADIO BUSINESS …
There were several unique aspects of operating radio stations, one of which related to managing the Federal Communications Commission (FCC) radio station licenses.
The FCC rules required that the licenses had to be placed in the name of RP, given that the assets, including the FCC licenses, had been assigned to the receiver.
As part of this process, the principals of RP involved in the receivership had to be subjected to FCC background checks prior to having the licenses transferred to them. RP took ownership of the FCC licenses as part of the process and held them pending a sale of the assets of the estate.
ONCE OPERATIONS STABILIZED …
Once RP stabilized the operations of the company, RP began researching alternatives to sell the radio stations as a group or in segments.
After exploring options to market the radio stations, RP decided to group the radio stations into geographic markets, instead of selling them individually.
We were told that the radio industry typically hires a broker to market the radio stations and sells them individually to whomever is the highest bidder.
We evaluated this option, but ultimately elected to market the radio stations in a different way.
PROFITABLE vs. UNPROFITABLE STATIONS …
The issue was that on balance some radio stations are very profitable due to ability to sell advertising because of higher ratings, while a number are not as profitable or even losing money.
Using the standard marketing approach, the higher-rated and most profitable radio stations would be sold first, and the least desirable radio stations would be sold at a substantially lower value, if at all.
We decided it would be preferable to sell radio stations based on those included in a particular market. The radio station portfolio included six different markets containing a mix of types of format and levels of profitability.
OUR NON-TRADITIONAL APPROACH …
Instead of hiring one broker to market a group of radio stations, we established bidding procedures that allowed for accepting bids for each market. All brokers were allowed to submit bids for a market, with the concept that the broker representing the winning bidder would receive an agreed-upon commission for the sale.
RP would then identify the best and highest bidder for each market, negotiate the final price and details of the sale, and subsequently submit it to the court for approval.
While this was not the accepted industry practice, we believed that this approach would provide a higher value for the creditors.
While a number of brokers initially expressed concern with this process, ultimately, they all agreed to participate.
Over a period of several months, RP received offers for all of the markets that had been identified and after a series of negotiations and court approval, they were sold to the best and highest bidder.
THE ULTIMATE OUTCOME …
The ultimate outcome was that the secured lender was paid the majority of the funds loaned, while they elected to sell a portion of their loan to a station operator who was then able to credit bid for the stations in his area.
The main takeaway of this story is that operating a company as a going concern typically provides a higher return to the creditors and enhances the value of the assets in a subsequent sale. In addition, it’s vitally important to evaluate all available options to maximize the value of the assets for sale and not just accept a standard industry approach without challenging the logic behind it.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
