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Settlement Information on behalf of Clear Channel Outdoor Holdings, Inc. Shareholders in In re iHeartMedia, Inc. (Bankr. S.D. Tex.) and GAMCO Asset Management, Inc. v. Hendrix, et al. (Del. Ch.)
December 18, 2018
On December 17, 2018, Hon. Judge Marvin Isgur of the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) issued a Preliminary order granting Entwistle & Cappucci LLP’s Joint Motion with other settling parties to preliminarily approve a settlement (the “Settlement”) negotiated by the Firm on behalf of GAMCO Asset Management, Inc. (“GAMCO”) – the largest minority shareholder of Clear Channel Outdoor Holdings, Inc. (“CCOH”) – and issued a Class Certification Order granting GAMCO’s Class Certification Motion to certify a class, appoint GAMCO as class representative, and appoint Entwistle & Cappucci as class counsel for purposes of the Settlement. The Settlement, if approved at the final hearing on January 22, 2018, will resolve:
(A) GAMCO’s potential objections (the “Objections”) to the plan of reorganization of iHeartCommunications, Inc. (“iHC”) and its affiliates (the “Debtors”) on behalf of CCOH for improper treatment of the balance owed to CCOH by iHC on an intercompany note as a general unsecured claim; and
(B) GAMCO’s class action in Delaware Chancery Court (the “Delaware Action”) on behalf of CCOH minority shareholders for the failure of the directors, officers and sponsors of CCOH to demand repayment of the intercompany note balance and declare a corresponding dividend to shareholders prior to iHC’s March 2018 bankruptcy.
As set forth in a Declaration and Supplemental Declaration of Andrew J. Entwistle filed with the Bankruptcy Court in support of preliminary approval of the Settlement, and as set forth in the, in exchange for foregoing GAMCO’s Objections in Bankruptcy Court on behalf of CCOH and claims in the Delaware Action on behalf of CCOH’s minority shareholders, the Firm negotiated the following benefits directly for CCOH and indirectly for CCOH Minority Shareholders:
(i) Complete separation of CCOH from iHC (which used to have supermajority voting rights to control CCOH and provide CCOH with corporate services) within a time-frame dictated by CCOH, including immediate termination of all existing intercompany agreements along with providing for a new short-term Transition Services Agreement (the “TSA”) that allows CCOH time to create internal infrastructure but the flexibility to cancel the TSA on 30 days’ notice to iHC;
(ii) A bankruptcy distribution of approximately $150 million, without any subordination, offset, reduction or cross-claims based on pre-petition liabilities or otherwise to iHC, including waivers by Debtors and the Unsecured Creditors Committee of all claims (not including the one objection by a noteholder group) that the CCOH proof of claim should be subordinated to the claims of general unsecured creditors and that the CCOH proof of claim should be offset by years of pre-petition unpaid royalties by CCOH on intellectual property owned by iHC, totaling approximately $500 million;
(iii) Waiver of any unpaid post-petition royalties on the intellectual property totaling approximately $30 million – including waiving any claim for set-off of that amount against post-petition funds owed to CCOH – resulting in the return to CCOH of approximately $8 million in post-petition cash and avoidance of a $22 million contractual claim against CCOH;
(iv) Waiver of any post-December 31, 2018 royalties through the effective date of the Plan, expected to be approximately $10 million;
(v) Waiver of any claim or setoff against CCOH for the post-separation transfer of certain intellectual property (including the Clear Channel Outdoor name and trademarks), valued on iHC’s books at $89 million; and
(vi) A $200 million credit line from iHC to CCOH for a duration of three years at Prime, which will provide operating liquidity to CCOH and save CCOH approximately $40 million in interest costs over the life of the loan.
In all, the Settlement assures the orderly separation of CCOH, the net payment of approximately $160 million to CCOH, waiver of approximately $630 million in royalty-related payments, $40 million in interest savings, and assures CCOH liquidity on a going forward basis. In addition, in order to provide added operating liquidity and preserve the possibility of future conversion of CCOH to a REIT, CCOH will issue approximately $40 million in non-convertible, non-voting, preferred stock and use the proceeds for operating costs.
As set forth in the Notice being sent to shareholders of CCOH in connection with the Settlement, if you are a shareholder and wish to object to final approval of the Settlement you have until January 14, 2019 and the hearing for final approval of the Settlement will occur in Houston, Texas on January 22, 2019.
If you would like more information on the Settlement, including copies of the Settlement documents and corporate documents for CCOH, please contact Josh Porter at (212) 894-7282 or [email protected]