We’ve written about Alpha Media, LLC at length in two recent articles. We promise this third article will be kept short, and it’s likely you’ll not hear anymore about this radio broadcaster who recently filed Chapter 11. That’s because a bankruptcy-focused specialist newsletter called Petition has given us a detailed view of what was happening in the run-up to the bankruptcy. The shenanigans involved between different creditors/prospective owners ares fascinating but there’s one central take-away for the BDC Credit Reporter that we were not aware of till now: apparently the first lien lenders to the company sold out their interests to Fortress – which was trying to gain control – and at par.
That’s all we need to know – if true – because the only BDC exposure is by WhiteHorse Finance (WHF) and is in the first lien secured term debt due 2/25/2022. This suggests WHF is out of Alpha Media and all the drama involved. We are re-rating the company to a CCR 6. This also mans WHF received early in January 2021 about $5.1mn. The FMV was already only -3% below cost so the BDC’s book value won’t be materially affected.
We’ll seek confirmation when WHF reports IVQ 2020 or IQ 2021 results but this seems like a positive outcome for WHF and much ado about nothing by the BDC Credit Reporter.
According to trade publication Radio Online, the media company Alpha Media, LLC has filed for bankruptcy protection. We also learn that “certain lenders” have agreed to advance Debtor In Possession monies and additional capital in the future (and,, presumably, will forgive some legacy debt) to get the business back on its feet in return for 100% control of the company, alongside management. Now the lenders and management are seeking court approval of this plan. We also learned : “Alpha Media said it will continue operating its stations without interruption, providing engaging news, music, sports and entertainment to its communities. The company’s day-to-day operations will continue in the normal course during this process“.
For the BDC Credit Reporter, this was unexpected news as the only BDC that still has exposure to the company – in the form of a 2022 Term Loan to the tune of $5.0mn – last valued its position at close to par and as performing. That BDC is WhiteHorse Finance (WHF), who briefly mentioned Alpha Media in its last conference call and said its value was “improving”. No word of an imminent bankruptcy. However, with the benefit of hindsight, we notice that the pricing on the loan was hiked up in the IIIQ 2020 from LIBOR + 600bps to Prime + 750 bps. Never a good sign.
We’re in no position to suss out what the final resolution of this investment might be. We don’t even know if WHF is part of the rescue creditor group. What we can say is that this company has been added to our IMPORTANT list, which means we expect a material change to show up in upcoming results. Technically Alpha Media has gone Chapter 11 in IQ 2021 but the debt may have been placed on non accrual earlier. In any case, over half a million dollars of investment income a year is in danger of not being collected for some period. More will be learned when WHF reports IVQ 2020 results.
The amount at risk is relatively modest, but we’ll still be interested to see how the BDC approaches this situation: inject more capital, time, sweat and tears or walk away. This is a calculation many BDC lenders have had to make of late, with most voting for the former. Our money in on WHF – sitting at the top of Alpha’s balance sheet – opting for doubling down.
Just hours after we wrote about Alpha Media LLC’s Chapter 11 filing, we’ve uncovered further details about what’s happening at this radio chain. According to several trade and financial articles we’ve read, management are working with second-lien lenders to provide Debtor In Possession (“DIP”) capital. In fact, the company already signed a $20 million Senior Secured Priming Superpriority Debtor-In-Possession Note Purchase Agreement.
The fly in the ointment – and what we were not aware of when writing our earlier article – is that there is a dispute about the future of the business – and its $267mn in debt – between first lien and second lien lenders. The group funding the DIP is from the second lien side, led by Intermediate Capital Group, said to hold over $100mn of pre-petition debt. The new buyers are offering to advance $37.5mn in expansion capital, which has the understandable support of the radio chain’s management. Here’s the actual bankruptcy filing with all the details.
The fly in the ointment is that – according to financial news reports – the senior lenders to Alpha Media, led by Fortress Investment Group, oppose the restructuring plan. Apparently Fortress made the company an offer it could refuse earlier and has chosen to go with the second lien lenders and their proposal of less debt and additional capital instead. More we cannot tell you at this stage but this might mean this Chapter 11 could get contentious. That can sometimes extract more capital for the company involved but can also exhaust already stretched financial resources and prolong the period of insecurity which a Chapter 11 filing involves.
Where the only BDC lender with exposure – WhiteHorse Finance (WHF) – sits in all this – with $11.2mn of exposure – we can’t say for certainty. WHF’s filings show the BDC holds a “first lien secured term loan“. That would suggest the BDC would line up with Fortress, but we don’t know. Probably WHF – due to its small position (which dates back to 2018 ) – has only little say in this situation. Just how this all plays out for WHF – and all the parties involved – remains a question mark that will get its answer in the weeks ahead. We’ll circle back as appropriate.