Situation Overview

Headquartered in Englewood, Colorado, NextMedia Group Inc. was a media advertising company comprised of radio broadcast, outdoor display and interactive divisions. The company owned and operated more than 33 radio stations and 5,700 outdoor advertising displays in 10 suburban markets across the U.S. Roughly 65% of NextMedia’s revenue was attributed to radio advertising and 35% to outdoor display ads purchased by smaller, local retail and service provider companies.  However, with the onset of the severe recession in 2009, coupled with dynamics reshaping the media industry, NextMedia experienced a sharp decline in radio and display revenues. As a result, NextMedia fell behind on monthly payment obligations and the company was forced to consider strategic alternatives.

NextMedia’s complex capital structure included more than $260 million in total debt (made up of roughly $180 million in first lien debt and $80 million in second lien debt) financed by 43 institutional investors. Because of Carl Marks Advisors’ unique capabilities in both financial restructuring advisory and operational assessment, they were engaged as the exclusive financial advisor to lead the first lien steering committee through the restructuring of NextMedia’s capital structure.

Unique Challenges

Reaching an agreement between the conflicting interests of the first and second lien group required Carl Marks Advisors’ full skill set of financial restructuring advisory and negotiating experience.

Carl Marks Advisors first recommended a restructuring plan which would initiate operational improvements and enable NextMedia to write-off a substantial portion of its first lien debt. This strategic proposal also made allowances to equalize the second lien debt, and split equity among first and second lien as well as existing equity and management. The terms of this proposal were not accepted by all groups, and the conflicting interests of the many investor constituents led to an extended negotiation process.

On a parallel track, Carl Marks Advisors conducted a comprehensive operational assessment and proposed a budget, forecast, and valuation findings to the first lien steering committee. Carl Marks Advisors’ assessment revealed that NextMedia’s assets were of high quality and management was effective, but few synergies were achieved between the radio and outdoor advertising divisions.

Results

The Carl Marks Advisors team worked diligently over several months to negotiate terms with the first and second lien groups. While negotiations continued, the external capital market improved significantly and buoyed an overall improvement in NextMedia’s operational performance, causing significant increases in both first and second lien debt trading volume and prices. As a result, two key institutions bought out a majority of the debt positions held by first lien committee members.

Ultimately, an operational restructuring was not needed due to the substantial improvement in NextMedia’s returns. However, Carl Marks Advisors’ in depth understanding of the company’s business and deep experience in the media industry were driving factors in a successful negotiation process, yielding favorable outcomes for the remaining first lien investors.

Insights

  • A positive outcome in a restructuring scenario requires in-depth knowledge of the inner workings of a company and the flexibility to switch directions mid-stream. This outcome may be different from the original strategy. But, a favorable result should be the goal, not the culmination of a specific, predetermined outcome.
  • It takes a trusted financial advisor with deep operational and transactional expertise to navigate a restructuring that accounts for the varying interests of all key constituencies. Especially with multiple interest groups and crossover lenders, skillful, and sometimes lengthy, negotiations are required to reach optimal solutions.
  • The dynamic media industry is continuously evolving to reflect changes in technology, public interest, and user preferences. Similar to the transition from print to digital mediums, new forms of broadcast media such as streaming online radio and podcasts have forced traditional media organizations to innovate and pivot business models. The financial advisory services of a third party firm can help make the preparations necessary to weather widespread industry shifts.