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EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11 PROCEEDINGS | 12 Months Ended
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Dec. 31, 2021
Reorganizations [Abstract] |
EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11 PROCEEDINGS | EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11 PROCEEDINGS Plan of Reorganization As described in Note 1, Summary of Significant Accounting Policies, on May 1, 2019, the Company and the other Debtors emerged from bankruptcy pursuant to the Plan of Reorganization. Capitalized terms not defined in this note are defined in the Plan of Reorganization. On or following the Effective Date and pursuant to the Plan of Reorganization, the following occurred: ▪CCOH was separated from and ceased to be controlled by iHeartCommunications and its subsidiaries. ▪The existing indebtedness of iHeartCommunications of approximately $16 billion was discharged, the Company entered into the Term Loan Facility ($3,500 million) and issued the 6.375% Senior Secured Notes ($800 million) and the Senior Unsecured Notes ($1,450 million), collectively the “Successor Emergence Debt.” ▪The Company adopted an amended and restated certificate of incorporation and bylaws. ▪Shares of the Predecessor Company’s issued and outstanding common stock immediately prior to the Effective Date were canceled, and on the Effective Date, reorganized iHeartMedia issued an aggregate of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock to holders of claims pursuant to the Plan of Reorganization. ▪The following classes of claims received the Successor Emergence Debt and 99.1% of the new equity, as defined in the Plan of Reorganization: ▪Secured Term Loan / 2019 PGN Claims (Class 4) ▪Secured Non-9.0% PGN Due 2019 Claims Other Than Exchange 11.25% PGN Claims (Class 5A) ▪Secured Exchange 11.25% PGN Claims (Class 5B) ▪iHC 2021 / Legacy Notes Claims (Class 6) ▪Guarantor Funded Debt against other Guarantor Debtors Other than CCH and TTWN (Class 7) ▪The holders of the Guarantor Funded Debt Unsecured Claims Against CCH (Class 7F) received their Pro Rata share of 100 percent of the CCOH Interests held by the Debtors and CC Finco, LLC and Broader Media, LLC. Refer to the discussion below regarding the Separation Transaction. ▪ Settled the following classes of claims in cash: •General Unsecured Claims Against Non-Obligor Debtors (Class 7A); paid in full •General Unsecured Claims Against TTWN Debtors (Class 7B); paid in full •iHC Unsecured Claims (Class 7D); paid 14.44% of allowed claim •Guarantor General Unsecured Claims (Class 7G); paid minimum of 45% and maximum of 55% of allowed claim ▪The CCOH Due From Claims (Class 8) represent the negotiated claim between iHeartMedia and CCOH, which was settled in cash on the date of emergence at 14.44%. ▪The Predecessor Company’s common stockholders (Class 9) received their pro rata share of 1% of the new common stock; provided that 0.1% of the new common stock that otherwise would have been distributed to the Company's former sponsors was instead distributed to holders of Legacy Notes Claims. ▪The Company entered into a new $450.0 million ABL Facility, which was undrawn at emergence. ▪The Company funded the Guarantor General Unsecured Recovery Cash Pool for $17.5 million in order to settle the Class 7G General Unsecured Claims. ▪The Company funded the Professional Fee Escrow Account. ▪On the Effective Date, the iHeartMedia, Inc. 2019 Incentive Equity Plan (the “Post-Emergence Equity Plan”) became effective. The Post-Emergence Equity Plan allowed the Company to grant stock options and restricted stock units representing up to 12,770,387 shares of Class A common stock for key members of management and service providers and up to 1,596,298 for non-employee members of the board of directors. The amounts of Class A common stock reserved under the Post-Emergence Equity Plan were equal to 8% and 1%, respectively, of the Company’s fully-diluted and distributed shares of Class A common stock as of the Effective Date. In addition, as part of the Separation, iHeartCommunications and CCOH consummated the following transactions: ▪the cash sweep agreement under the then-existing corporate services agreement and any agreements or licenses requiring royalty payments to iHeartMedia by CCOH for trademarks or other intellectual property (“Trademark License Fees”) were terminated; ▪iHeartCommunications, iHeartMedia, iHeartMedia Management Services, Inc. (“iHM Management Services”) and CCOH entered into a transition services agreement (the “Transition Services Agreement”) pursuant to which, the Company or its subsidiaries provided administrative services historically provided to CCOH by iHeartCommunications for a period of one year after the Effective Date, which was terminated on August 31, 2020; ▪the Trademark License Fees charged to CCOH during the post-petition period were waived by iHeartMedia; ▪iHeartMedia contributed the rights, title and interest in and to all tradenames, trademarks, service marks, common law marks and other rights related to the Clear Channel tradename (the “CC Intellectual Property”) to CCOH; ▪iHeartMedia paid $115.8 million to CCOH, which consisted of the $149.0 million payment by iHeartCommunications to CCOH as CCOH’s recovery of its claims under the Due from iHeartCommunications Note, partially offset by the $33.2 million net amount payable to iHeartCommunications under the post-petition intercompany balance between iHeartCommunications and CCOH after adjusting for the post-petition Trademark License Fees which were waived as part of the settlement agreement; ▪iHeartCommunications entered into a revolving loan agreement with Clear Channel Outdoor, LLC (“CCOL”) and Clear Channel International, Ltd., wholly-owned subsidiaries of CCOH, to provide a line of credit in an aggregate amount not to exceed $200 million at the prime rate of interest, which was terminated by the borrowers on July 30, 2019 in connection with the closing of an underwritten public offering of common stock by CCOH; and ▪iHeart Operations, Inc. issued $60.0 million in preferred stock to a third party for cash, which was repurchased on October 27, 2021 (see Note 6, Long-Term Debt).FRESH START ACCOUNTING Fresh Start In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, Reorganizations, the Company qualified for and adopted fresh start accounting on the Effective Date. The Company was required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims. In accordance with ASC 852, Reorganizations, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations. The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after May 1, 2019 are not comparable with the consolidated financial statements as of or prior to that date. Reorganization Value As set forth in the Plan of Reorganization and the Disclosure Statement, the enterprise value of the Successor Company was estimated to be between $8.0 billion and $9.5 billion. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $8.75 billion, which was the mid-point of the range of enterprise value as of the Effective Date. Management and its valuation advisors estimated the enterprise value of the Successor Company, which was approved by the Bankruptcy Court. The selected publicly traded companies analysis approach, the discounted cash flow analysis approach and the selected transactions analysis approach were all utilized in estimating the enterprise value. The use of each approach provides corroboration for the other approaches. To estimate enterprise value utilizing the selected publicly traded companies analysis method, valuation multiples derived from the operating data of publicly-traded benchmark companies to the same operating data of the Company were applied. The selected publicly traded companies analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on historical and projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of the Company. To estimate enterprise value utilizing the discounted cash flow method, an estimate of future cash flows for the period 2019 to 2022 with a terminal value was determined and discounted the estimated future cash flows to present value. The expected cash flows for the period 2019 to 2022 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2019 to 2022 were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. A terminal value was included, calculated using the terminal multiple method, which estimates a range of values at which the Successor Company will be valued at the end of the Projection Period based on applying a terminal multiple to final year Adjusted EBITDA (referred to as "OIBDAN" in the documents filed with the Bankruptcy Court), which is defined as consolidated operating income adjusted to exclude non-cash compensation expenses included within corporate expenses, as well as Depreciation and amortization, Impairment charges and Other operating income (expense), net. To estimate enterprise value utilizing the selected transactions analysis, valuation multiples were derived from an analysis of consideration paid and net debt assumed from publicly disclosed merger or acquisition transactions, and such multiples were applied to the broadcast cash flows of the Successor Company. The selected transactions analysis identified companies and assets involved in publicly disclosed merger and acquisition transactions for which the targets had operating and financial characteristics comparable in certain respects to the Successor Company. The following table reconciles the enterprise value per the Plan of Reorganization to the implied value (for fresh start accounting purposes) of the Successor Company's common stock as of the Effective Date:
(In thousands, except per share data) |
Enterprise Value | $ | 8,750,000 |
Plus: |
Cash and cash equivalents | 63,142 |
Less: |
Debt issued upon emergence | (5,748,178) |
Finance leases and short-term notes | (61,939) |
Mandatorily Redeemable Preferred Stock | (60,000) |
Changes in deferred tax liabilities(1) | (163,910) |
Noncontrolling interest | (8,943) |
Implied value of Successor Company common stock | $ | 2,770,172 |
Shares issued upon emergence (2) | 145,263 |
Per share value | $ | 19.07 |
(1) Difference in the assumed effect of deferred taxes in the calculation of enterprise value versus the actual effect of deferred taxes as of May 1. (2) Includes the Class A Common Stock, Class B Common Stock and Special Warrants issued at emergence. The reconciliation of the Company’s enterprise value to reorganization value as of the Effective Date is as follows:
(In thousands) |
Enterprise Value | $ | 8,750,000 |
Plus: |
Cash and cash equivalents | 63,142 |
Current liabilities (excluding Current portion of long-term debt) | 426,944 |
Deferred tax liability | 596,850 |
Other long-term liabilities | 54,393 |
Noncurrent operating lease obligations | 818,879 |
Reorganization value | $ | 10,710,208 |
Consolidated Balance Sheet The adjustments set forth in the following consolidated balance sheet as of May 1, 2019 reflect the effect of the Separation (reflected in the column "Separation of CCOH Adjustments"), the consummation of the transactions contemplated by the Plan of Reorganization that are incremental to the Separation (reflected in the column "Reorganization Adjustments") and the fair value adjustments as a result of applying fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities, as well as significant assumptions or inputs.
(In thousands) |  |  | Separation of CCOH Adjustments |  | Reorganization Adjustments |  | Fresh Start Adjustments |  |
| Predecessor |  | (A) |  | (B) |  | (C) |  | Successor
CURRENT ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 175,811 |  |  | $ | — |  |  | $ | (112,669) |  | (1) | $ | — |  |  | $ | 63,142 |
Accounts receivable, net | 748,326 |  |  | — |  |  | — |  |  | (10,810) |  | (1) | 737,516 |
Prepaid expenses | 127,098 |  |  | — |  |  | — |  |  | (24,642) |  | (2) | 102,456 |
Other current assets | 22,708 |  |  | — |  |  | 8,125 |  | (2) | (1,668) |  | (3) | 29,165 |
Current assets of discontinued operations | 1,000,753 |  |  | (1,000,753) |  | (1) | — |  |  | — |  |  | — |
Total Current Assets | 2,074,696 |  |  | (1,000,753) |  |  | (104,544) |  |  | (37,120) |  |  | 932,279 |
PROPERTY, PLANT AND EQUIPMENT |  |  |  |  |  |  |  |  |
Property, plant and equipment, net | 499,001 |  |  | — |  |  | — |  |  | 333,991 |  | (4) | 832,992 |
INTANGIBLE ASSETS AND GOODWILL |  |  |  |  |  |  |  |  |
Indefinite-lived intangibles - licenses | 2,326,626 |  |  | — |  |  | — |  |  | (44,906) |  | (5) | 2,281,720 |
Other intangibles, net | 104,516 |  |  | — |  |  | — |  |  | 2,240,890 |  | (5) | 2,345,406 |
Goodwill | 3,415,492 |  |  | — |  |  | — |  |  | (92,127) |  | (5) | 3,323,365 |
OTHER ASSETS |  |  |  |  |  |  |  |  |
Operating lease right-of-use assets | 355,826 |  |  | — |  |  | — |  |  | 554,278 |  | (6) | 910,104 |
Other assets | 139,409 |  |  | — |  |  | (384) |  | (3) | (54,683) |  | (2) | 84,342 |
Long-term assets of discontinued operations | 5,351,513 |  |  | (5,351,513) |  | (1) | — |  |  | — |  |  | — |
Total Assets | $ | 14,267,079 |  |  | $ | (6,352,266) |  |  | $ | (104,928) |  |  | $ | 2,900,323 |  |  | $ | 10,710,208 |
CURRENT LIABILITIES |  |  |  |  |  |  |  |  |
Accounts payable | $ | 41,847 |  |  | $ | — |  |  | $ | 3,061 |  | (4) | $ | — |  |  | $ | 44,908 |
Current operating lease liabilities | 470 |  |  | — |  |  | 31,845 |  | (7) | 39,092 |  | (6) | 71,407 |
Accrued expenses | 208,885 |  |  | — |  |  | (32,250) |  | (5) | 2,328 |  | (9) | 178,963 |
Accrued interest | 462 |  |  | — |  |  | (462) |  | (6) | — |  |  | — |
Deferred revenue | 128,452 |  |  | — |  |  | — |  |  | 3,214 |  | (7) | 131,666 |
Current portion of long-term debt | 46,618 |  |  | — |  |  | 6,529 |  | (7) | 40 |  | (6) | 53,187 |
Current liabilities of discontinued operations | 999,778 |  |  | (999,778) |  | (1) | — |  |  | — |  |  | — |
Total Current Liabilities | 1,426,512 |  |  | (999,778) |  |  | 8,723 |  |  | 44,674 |  |  | 480,131 |
Long-term debt | — |  |  | — |  |  | 5,758,516 |  | (8) | (1,586) |  | (8) | 5,756,930 |
Series A Mandatorily Redeemable Preferred Stock | — |  |  | — |  |  | 60,000 |  | (9) | — |  |  | 60,000 |
Noncurrent operating lease liabilities | 828 |  |  | — |  |  | 398,154 |  | (7) | 419,897 |  | (6) | 818,879 |
Deferred income taxes | — |  |  | — |  |  | 575,341 |  | (10) | 185,419 |  | (10) | 760,760 |
Other long-term liabilities | 121,081 |  |  | — |  |  | (64,524) |  | (11) | (2,164) |  | (7) | 54,393 |
Liabilities subject to compromise | 16,770,266 |  |  | — |  |  | (16,770,266) |  | (7) | — |  |  | — |
Long-term liabilities of discontinued operations | 7,472,633 |  |  | (7,472,633) |  | (1) | — |  |  | — |  |  | — |
Commitments and contingent liabilities (Note 7) |  |  |  |  |  |  |  |  |
STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |  |
Noncontrolling interest | 13,584 |  |  | (13,199) |  | (1) | — |  |  | 8,558 |  | (11) | 8,943 |
Predecessor common stock | 92 |  |  | — |  |  | (92) |  | (12) | — |  |  | — |
Successor Class A Common Stock | — |  |  | — |  |  | 57 |  | (13) | — |  |  | 57 |
Successor Class B Common Stock | — |  |  | — |  |  | 7 |  | (13) | — |  |  | 7 |
Predecessor additional paid-in capital | 2,075,130 |  |  | — |  |  | (2,075,130) |  | (12) | — |  |  | — |
Successor additional paid-in capital | — |  |  | — |  |  | 2,770,108 |  | (13) | — |  |  | 2,770,108 |
Accumulated deficit | (13,288,497) |  |  | 1,825,531 |  | (1) | 9,231,616 |  | (14) | 2,231,350 |  | (12) | — |
Accumulated other comprehensive loss | (321,988) |  |  | 307,813 |  | (1) | — |  |  | 14,175 |  | (12) | — |
Cost of share held in treasury | (2,562) |  |  | — |  |  | 2,562 |  | (12) | — |  |  | — |
Total Stockholders' Equity (Deficit) | (11,524,241) |  |  | 2,120,145 |  |  | 9,929,128 |  |  | 2,254,083 |  |  | 2,779,115 |
Total Liabilities and Stockholders' Equity (Deficit) | $ | 14,267,079 |  |  | $ | (6,352,266) |  |  | $ | (104,928) |  |  | $ | 2,900,323 |  |  | $ | 10,710,208 |
A. Separation of CCOH Adjustments (1) On May 1, 2019, as part of the Separation, the outstanding shares of both classes of CCOH common stock were consolidated such that CCH held all of the outstanding CCOH Class A common stock that was held by subsidiaries of iHeartCommunications, through a series of share distributions by other subsidiaries that held CCOH common stock and a conversion of CCOH Class B common stock that CCH held to CCOH Class A common stock. Prior to the Separation, iHeartCommunications owned approximately 89.1% of the economic rights and approximately 99% of the voting rights of CCOH. To complete the Separation, CCOH merged with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and pre-merger shares of CCOH Class A common stock (other than shares of CCOH Class A common stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) were converted into an equal number of shares of post-merger common stock of New CCOH. iHeartCommunications transferred the post-merger common stock of New CCOH it held to Claimholders pursuant to the Plan of Reorganization but retained 31,269,762 shares. Such retained shares were distributed to two affiliated Claimholders on July 18, 2019. Upon completion of the merger and Separation, New CCOH became an independent public company. Upon distribution of the shares held by iHeartCommunications, the Company does not hold any ownership interest in CCOH. The assets and liabilities of CCOH have been classified as discontinued operations. The discontinued operations reflect the assets and liabilities of CCOH, which are presented as discontinued operations as of the Effective Date. CCOH’s assets and liabilities are adjusted to: (1) eliminate the balance on the Due from iHeartCommunications Note and the balance on the intercompany payable due to iHeartCommunications from CCOH’s consolidated balance sheet, which are intercompany amounts that were eliminated in consolidation; (2) eliminate CCOH’s Noncontrolling interest and treasury shares; and (3) eliminate other intercompany balances. B. Reorganization Adjustments In accordance with the Plan of Reorganization, the following adjustments were made: (1) The table below reflects the sources and uses of cash on the Effective Date from implementation of the Plan:
(In thousands) |  |
Cash at May 1, 2019 (excluding discontinued operations) | $ | 175,811 |  |
Sources: |  |
Proceeds from issuance of Mandatorily Redeemable Preferred Stock | $ | 60,000 |  |
Release of restricted cash from other assets into cash | 3,428 |  |
Total sources of cash | $ | 63,428 |  |
Uses: |  |
Payment of Mandatorily Redeemable Preferred Stock issuance costs | $ | (1,513) |  |
Payment of New Term Loan Facility to settle certain creditor claims | (1,822) |  |
Payments for Emergence debt issuance costs | (7,213) |  |
Funding of the Guarantor General Unsecured Recovery Cash Pool | (17,500) |  |
Payments for fully secured claims and general unsecured claims | (1,990) |  |
Payment of contract cure amounts | (15,763) |  |
Payment of consenting stakeholder fees | (4,000) |  |
Payment of professional fees | (85,091) |  | (a)
Funding of Professional Fees Escrow Account | (41,205) |  | (a)
Total uses of cash | $ | (176,097) |  |
Net uses of cash | $ | (112,669) |  |
Cash upon emergence | $ | 63,142 |  |
(a) Approximately $30.5 million of professional fees paid at emergence were accrued as of May 1, 2019. These payments also reflect both the payment of success fees for $86.1 million and other professionals paid directly at emergence. (2) Pursuant to the terms of the Plan of Reorganization, on the Effective Date, the Company funded the Guarantor General Unsecured Recovery Cash Pool account in the amount of $17.5 million, which was reclassified as restricted cash within Other current assets. The Company made payments of $6.0 million through the Cash Pool at the time of emergence. Additionally, $3.4 million of restricted cash previously held to pay critical utility vendors was reclassified to cash. (3) Reflects the write-off of prepaid expenses related to the $2.3 million of prepaid premium for Predecessor Company's director and officer insurance policy, offset by the accrual of future reimbursements of $1.9 million for negotiated discounts related to the professional fee escrow account. (4) Reflects the reinstatement of $3.1 million of accounts payable included within Liabilities subject to compromise to be satisfied in the ordinary course of business. (5) Reflects the reduction of accrued expenses related to the $21.2 million of professional fees paid directly, $9.3 million of professional fees paid through the Professional Fee Escrow Account and other accrued expense items. Additionally, the Company reinstated accrued expenses included within Liabilities subject to compromise to be satisfied in the ordinary course of business.
(In thousands) |
Reinstatement of accrued expenses | $ | 551 |
Payment of professional fees | (21,177) |
Payment of professional fees through the escrow account | (9,260) |
Impact on other accrued expenses | (2,364) |
Net impact on Accrued expenses | $ | (32,250) |
(6) Reflects the write-off of the DIP facility accrued interest associated with the DIP facility fees paid at emergence. (7) As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company's Consolidated balance sheet at their respective allowed claim amounts. The table below indicates the disposition of Liabilities subject to compromise:
(In thousands) |  |
Liabilities subject to compromise pre-emergence | $ | 16,770,266 |  |
To be reinstated on the Effective Date: |  |
Deferred taxes | $ | (596,850) |  |
Accrued expenses | (551) |  |
Accounts payable | (3,061) |  |
Finance leases and other debt | (16,867) |  | (a)
Current operating lease liabilities | (31,845) |  |
Noncurrent operating lease liabilities | (398,154) |  |
Other long-term liabilities | (14,518) |  | (b)
Total liabilities reinstated | $ | (1,061,846) |  |
Less amounts settled per the Plan of Reorganization |  |
Issuance of new debt | $ | (5,750,000) |  |
Payments to cure contracts | (15,763) |  |
Payments for settlement of general unsecured claims from escrow account | (5,822) |  |
Payments for fully secured and other claim classes at emergence | (1,990) |  |
Equity issued at emergence to creditors in settlement of Liabilities subject to Compromise | (2,742,471) |  |
Total amounts settled | (8,516,046) |  |
Gain on settlement of Liabilities Subject to Compromise | $ | 7,192,374 |  |
(a) Includes finance lease liabilities and other debt of $6.6 million and $10.3 million classified as current and long-term debt, respectively. (b) Reinstatement of Other long-term liabilities were as follows:
(In thousands) |
Reinstatement of long-term asset retirement obligations | $ | 3,527 |
Reinstatement of non-qualified deferred compensation plan | 10,991 |
Total reinstated Other long-term liabilities | $ | 14,518 |
(8) The exit financing consists of the Term Loan Facility of approximately $3.5 billion and 6.375% Senior Secured Notes totaling $800 million, both maturing seven years from the date of issuance, the Senior Unsecured Notes totaling $1.45 billion, maturing eight years from the date of issuance, and a $450 million ABL Facility with no amount drawn at emergence, which matures on June 14, 2023. Upon emergence, the Company paid cash of $1.8 million to settle certain creditor claims for which claims were designated to receive term loans pursuant to the Plan of Reorganization. The remaining $10.3 million is related to the reinstatement of the Long-term portion of finance leases and other debt as described above.
(In thousands) | Term |  | Interest Rate |  | Amount
Term Loan Facility | 7 years |  | Libor + 4.00% |  | $ | 3,500,000 |
6.375% Senior Secured Notes | 7 years |  | 6.375% |  | 800,000 |
Senior Unsecured Notes | 8 years |  | 8.375% |  | 1,450,000 |
Asset-based Revolving Credit Facility | 4 years |  | Varies(a) |  | — |
Total Long-Term Debt - Exit Financing |  |  |  |  | $ | 5,750,000 |
Less: |  |  |  |  |
Payment of Term Loan Facility to settle certain creditor claims |  |  |  |  | (1,822) |
Net proceeds from exit financing at emergence |  |  |  |  | $ | 5,748,178 |
Long-term portion of finance leases and other debt reinstated |  |  |  |  | 10,338 |
Net impact on Long-term debt |  |  |  |  | $ | 5,758,516 |
(a) Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (x) a eurocurrency rate or (y) a base rate. The applicable margin for borrowings under the ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently ended fiscal quarter. (9) Reflects the issuance by iHeart Operations of $60.0 million in aggregate liquidation preference of its Series A Perpetual Preferred Stock, par value $0.001 per share. On May 1, 2029, the shares of the Preferred Stock would have been subject to mandatory redemption for $60.0 million in cash, plus any accrued and unpaid dividends. However, these shares were repurchased for cash on October 27, 2021. (10) Reflects the reinstatement of deferred tax liabilities included within Liabilities subject to compromise of $596.9 million, offset by an adjustment to net deferred tax liabilities of $21.5 million. Upon emergence from the Chapter 11 Cases, iHeartMedia’s federal and state net operating loss carryforwards were reduced in accordance with Section 108 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), due to cancellation of debt income, which is excluded from U.S. federal taxable income. The estimated remaining deferred tax assets attributed to federal and state net operating loss carryforwards upon emergence totaled $114.9 million. The adjustments reflect a reduction in deferred tax assets for federal and state net operating loss carryforwards as described above, a reduction in deferred tax liabilities attributed to long-term debt as a result of the restructuring of our indebtedness upon emergence and a reduction in valuation allowance. (11) Reflects the reinstatement of Other long-term liabilities from Liabilities subject to compromise, offset by the reduction of liabilities for unrecognized tax benefits classified as Other long-term liabilities that were discharged and effectively settled upon emergence.
(In thousands) |
Reinstatement of long-term asset retirement obligations | $ | 3,527 |
Reinstatement of non-qualified pension plan | 10,991 |
Reduction of liabilities for unrecognized tax benefits | (79,042) |
Net impact to Other long-term liabilities | $ | (64,524) |
(12) Pursuant to the terms of the Plan of Reorganization, as of the Effective Date, all Predecessor common stock and stock-based compensation awards were canceled without any distribution. As a result of the cancellation, the Company recognized $1.5 million in compensation expense related to the unrecognized portion of share-based compensation as of the Effective Date. (13) Reflects the issuance of Successor Company equity, including the issuance of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock in exchange for claims against or interests in iHeartMedia pursuant to the Plan of Reorganization.
(In thousands) |  |
Equity issued to Class 9 Claimholders (prior equity holders) | $ | 27,701 |  |
Equity issued to creditors in settlement of Liabilities subject to compromise | 2,742,471 |  |
Total equity issued at emergence | $ | 2,770,172 |  |
(14) The table reflects the cumulative impact of the reorganization adjustments discussed above:
(In thousands) |  |
Gain on settlement of Liabilities subject to compromise | $ | 7,192,374 |  |
Payment of professional fees upon emergence | (11,509) |  |
Payment of success fees upon emergence | (86,065) |  |
Cancellation of unvested stock-based compensation awards | (1,530) |  |
Cancellation of Predecessor prepaid director and officer insurance policy | (2,331) |  |
Write-off of debt issuance and Mandatorily Redeemable Preferred Stock costs incurred at emergence | (8,726) |  |
Total Reorganization items, net | $ | 7,082,213 |  |
Income tax benefit | $ | 102,914 |  |
Cancellation of Predecessor Equity | 2,074,190 |  | (a)
Issuance of Successor Equity to prior equity holders | (27,701) |  |
Net Impact on Accumulated deficit | $ | 9,231,616 |  |
(a) This value is reflective of Predecessor common stock, Additional paid in capital and the recognition of $1.5 million in compensation expense related to the unrecognized portion of share-based compensation, less Treasury stock. C. Fresh Start Adjustments We have applied fresh start accounting in accordance with ASC 852, Reorganizations. Fresh start accounting requires the revaluation of our assets and liabilities to fair value, including both existing and new intangible assets, such as FCC licenses, developed technology, customer relationships and tradenames. Fresh start accounting also requires the elimination of all predecessor earnings or deficits in Accumulated deficit and Accumulated other comprehensive loss. These adjustments reflect the actual amounts recorded as of the Effective Date. (1) Reflects the fair value adjustment as of May 1, 2019 made to accounts receivable to reflect management's best estimate of the expected collectability of accounts receivable balances. (2) Reflects the fair value adjustment as of May 1, 2019 to eliminate certain prepaid expenses related to software implementation costs and other upfront payments. The Company historically incurred third-party implementation fees in connection with installing various cloud-based software products, and these amounts were recorded as prepaid expenses and recognized as a component of selling, general and administrative expense over the term of the various contracts. The Company determined that the remaining unamortized costs related to such implementation fees do not provide any rights that result in future economic benefits. In addition, the Company pays signing bonuses to certain of its on-air personalities, and these amounts were recorded as prepaid expenses and recognized as a component of Direct operating expenses over the terms of the various contracts. To the extent these contracts do not contain substantive claw-back provisions, these prepaid amounts do not provide any enforceable rights that result in future economic benefits. Accordingly, the balances related to these contracts as of May 1, 2019 were adjusted to zero. (3) Reflects the fair value adjustment to eliminate receivables related to tenant allowances per certain lease agreements. These receivables were incorporated into the recalculated lease obligations per ASC 842. (4) Reflects the fair value adjustment to recognize the Company’s property, plant and equipment as of May 1, 2019 based on the fair values of such property, plant and equipment. Property was valued using a market approach comparing similar properties to recent market transactions. Equipment and towers were valued primarily using a replacement cost approach. Internally-developed and owned software technology assets were valued primarily using the Royalty Savings Method, similar to the approach used in valuing the Company’s tradenames and trademarks. Estimated royalty rates were determined for each of the software technology assets considering the relative contribution to the Company’s overall profitability as well as available public market information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the software technology assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. For certain of the software technology assets, the Company used the cost approach which utilized historical financial data regarding development costs and expected future profit associated with the assets. The adjustment to the Company’s property, plant and equipment consists of a $182.9 million increase in tangible property and equipment and a $151.0 million increase in software technology assets (5) Historical goodwill and other intangible assets have been eliminated and the Company has recognized certain intangible assets at estimated current fair values as part of the application of fresh start accounting, with the most material intangible assets being the FCC licenses related to the Company’s 854 radio stations. The Company has also recorded customer-related and marketing-related intangible assets, including the iHeart tradename. The following table sets forth estimated fair values of the components of these intangible assets and their estimated useful lives:
(In thousands) | Estimated Fair Value |  | Estimated Useful Life
FCC licenses | $ | 2,281,720 |  | (a) | Indefinite
Customer / advertiser relationships | 1,643,670 |  | (b) | 5 - 15 years
Talent contracts | 373,000 |  | (b) | 2 - 10 years
Trademarks and tradenames | 321,928 |  | (b) | 7 - 15 years
Other | 6,808 |  | (c) |
Total intangible assets upon emergence | $ | 4,627,126 |  |  |
Elimination of historical acquired intangible assets | (2,431,142) |  |  |
Fresh start adjustment to acquired intangible assets | $ | 2,195,984 |  |  |
(a) FCC licenses. The fair value of the indefinite-lived FCC licenses was determined primarily using the direct valuation method of the Income Approach and, for smaller markets a combination of the Income approach and the Market Approach. The Company engaged a third-party valuation firm to assist it in the development of the assumptions and the Company’s determination of the fair value of its FCC licenses. Under the direct valuation method, the fair value of the FCC licenses was calculated at the market level as prescribed by ASC 350, Intangibles-Goodwill and Other. The application of the direct valuation method attempts to isolate the income that is properly attributable to the FCC licenses alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. Under the direct valuation method, it is assumed that rather than acquiring FCC licenses as part of a going concern business, the buyer hypothetically obtains FCC licenses and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the FCC licenses. In applying the direct valuation method to the Company’s FCC licenses, the licenses are grouped by type (e.g. FM licenses vs. AM licenses) and market size in order to ensure appropriate assumptions are used in valuing the various FCC licenses based on population and demographics that influence the level of revenues generated by each FCC license, using industry projections. The key assumptions used in applying the direct valuation method include market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate (“WACC”) and terminal values. The WACC was calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages based on a market participant capital structure. For licenses valued using the Market Transaction Method, the Company used publicly available data, which included sales of comparable radio stations and FCC auction data involving radio broadcast licenses to estimate the fair value of FCC licenses. Similar to the application of the Income approach for the FCC licenses, the Company grouped licenses by type and market size for comparison to historical market transactions. The historical book value of the FCC licenses as of May 1, 2019 was subtracted from the fair value of the FCC licenses to determine the adjustment to decrease the value of Indefinite-lived intangible assets-licenses by $44.9 million. (b) Other intangible assets. Definite-lived intangible assets include customer/advertiser relationships, talent contracts for on-air personalities, trademarks and tradenames and other intangible assets. The Company engaged a third-party valuation firm to assist in developing the assumptions and determining the fair values of each of these assets. For purposes of estimating the fair values of customer/advertiser relationships and talent contracts, the Company primarily utilized the Income Approach (specifically, the multi-period excess earnings method, or MPEEM) to estimate fair value based on the present value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to each grouping of customer/advertiser relationships were adjusted for the appropriate contributory asset charges (e.g., FCC licenses, working capital, tradenames, technology, workforce, etc.). The discount rate utilized to present-value the after-tax cash flows was selected based on consideration of the overall business risks and the risks associated with the specific assets being valued. Additionally, for certain advertiser relationships the Company used the Cost Approach using historical financial data regarding the sales, administrative and overhead expenses related to the Company’s selling efforts associated with revenue for both existing and new advertisers. The ratio of expenses for selling efforts to revenue was applied to total revenue from new customers to determine an estimated cost per revenue dollar of revenue generated by new customers. This ratio was applied to total revenue from existing customers to estimate the replacement cost of existing customer/advertiser relationships. The historical book value of customer/advertiser relationships as of May 1, 2019 was subtracted from the fair value of the customer/advertiser relationships determined as described above to determine the adjustment to increase the value of the customer/advertiser relationship intangible assets by $1,604.1 million. For purposes of estimating the fair value of trademarks and tradenames, the Company primarily used the Royalty Savings Method, a variation of the Income approach. Estimated royalty rates were determined for each of the trademarks and tradenames considering the relative contribution to the Company’s overall profitability as well as available public information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the trademarks and tradenames to determine the amount of royalty payments saved as a result of owning these assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. The historical book values of talent contracts, trademarks and tradenames and other intangible assets as of May 1, 2019 were subtracted from the fair values determined as described above to determine the adjustments as follows:
(In millions) |  |
Customer/advertiser relationships | $ | 1,604.1 |  | increase in value
Talent contracts | 361.6 |  | increase in value
Trademarks and tradenames | 274.4 |  | increase in value
Other | 0.8 |  | increase in value
Total fair value adjustment | $ | 2,240.9 |  | increase in value
(c) Included within other intangible assets are permanent easements, which have an indefinite useful life. All other intangible assets are amortized over the respective lives of the agreements, or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. The following table sets forth the adjustments to goodwill:
(In thousands) |
Reorganization value | $ | 10,710,208 |
Less: Fair value of assets (excluding goodwill) | (7,386,843) |
Total goodwill upon emergence | 3,323,365 |
Elimination of historical goodwill | (3,415,492) |
Fresh start adjustment to goodwill | $ | (92,127) |
(6) The operating lease obligation as of May 1, 2019 had been calculated using an incremental borrowing rate applicable to the Company while it was a debtor-in-possession before its emergence from bankruptcy. Upon application of fresh start accounting, the lease obligation was recalculated using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate to its new capital structure. The incremental borrowing rate used decreased from 12.44% as of March 31, 2019 to 6.54% as of May 1, 2019. As a result of this decrease, the Company's Operating lease liabilities and corresponding Operating lease right-of-use assets increased by $541.2 million to reflect the higher balances resulting from the application of a lower incremental borrowing rate. The Operating lease right-of-use-assets were further adjusted to reflect the resetting of the Company's straight-line lease calculation. In addition, the Company increased the Operating lease right-of-use assets to recognize $13.1 million related to the favorable lease contracts. (7) Reflects the fair value adjustment to adjust deferred revenue and other liabilities as of May 1, 2019 to its estimated fair value. The fair value of the deferred revenue was determined using the market approach and the cost approach. The market approach values deferred revenue based on the amount an acquirer would be required to pay a third party to assume the remaining performance obligations. The cost approach values deferred revenue utilizing estimated costs that will be incurred to fulfill the obligation plus a normal profit margin for the level of effort or assumption of risk by the acquirer. Additionally, a deferred gain was recorded at the time of the certain historical sale-leaseback transaction. During the implementation of ASC 842, Leases, the operating portion was written off as of January 1, 2019. The financing lease deferred gain remained. As part of fresh start accounting, this balance of $0.9 million was written off. (8) Reflects the fair value adjustment to adjust Long-term debt as of May 1, 2019. This adjustment is to state the Company's finance leases and other pre-petition debt at estimated fair values. (9) Reflects the fair value adjustment to adjust Accrued expenses as of May 1, 2019. This adjustment primarily relates to adjusting vacation accruals to estimated fair values. (10) Reflects a net increase to deferred tax liabilities for fresh start adjustments attributed primarily to property, plant and equipment and intangible assets, the effects of which are partially offset by a decrease in the valuation allowance. The Company believes it is more likely than not that its deferred tax assets remaining after the Reorganization and emergence will be realized based on taxable income from reversing deferred tax liabilities primarily attributable to property, plant and equipment and intangible assets. (11) Reflects the adjustment as of May 1, 2019 to state the noncontrolling interest balance at estimated fair value. (12) The table below reflects the cumulative impact of the fresh start adjustments as discussed above:
(In thousands) |  |
Fresh start adjustment to Accounts receivable, net | $ | (10,810) |  |
Fresh start adjustment to Other current assets | (1,668) |  |
Fresh start adjustment to Prepaid expenses | (24,642) |  |
Fresh start adjustment to Property, plant and equipment, net | 333,991 |  |
Fresh start adjustment to Intangible assets | 2,195,984 |  |
Fresh start adjustment to Goodwill | (92,127) |  |
Fresh start adjustment to Operating lease right-of-use assets | 554,278 |  |
Fresh start adjustment to Other assets | (54,683) |  |
Fresh start adjustment to Accrued expenses | (2,328) |  |
Fresh start adjustment to Deferred revenue | (3,214) |  |
Fresh start adjustment to Debt | 1,546 |  |
Fresh start adjustment to Operating lease obligations | (458,989) |  |
Fresh start adjustment to Other long-term liabilities | 2,164 |  |
Fresh start adjustment to Noncontrolling interest | (8,558) |  |
Total Fresh Start Adjustments impacting Reorganization items, net | $ | 2,430,944 |  |
Reset of Accumulated other comprehensive income | (14,175) |  |
Income tax expense | (185,419) |  |
Net impact to Accumulated deficit | $ | 2,231,350 |  |
Reorganization Items, Net The tables below present the Reorganization items incurred and cash paid for Reorganization items as a result of the Chapter 11 Cases during the periods presented:
(In thousands) | Successor Company |  |  | Predecessor Company
| Year Ended December 31, |  | Period from May 2, 2019 through December 31, |  |  | Period from January 1, 2019 through May 1,
| 2021 |  | 2020 |  | 2019 |  |  | 2019
Professional fees and other bankruptcy related costs | — |  |  | — |  |  | — |  |  |  | (157,487) |
Net gain on settlement of Liabilities subject to compromise | — |  |  | — |  |  | — |  |  |  | 7,192,374 |
Impact of fresh start adjustments | — |  |  | — |  |  | — |  |  |  | 2,430,944 |
Other items, net | — |  |  | — |  |  | — |  |  |  | (4,005) |
Reorganization items, net | $ | — |  |  | $ | — |  |  | $ | — |  |  |  | $ | 9,461,826 |
Cash payments for Reorganization items, net | $ | — |  |  | $ | 443 |  |  | $ | 18,360 |  |  |  | $ | 183,291 |
The Successor Company incurred additional professional fees related to the bankruptcy, post-emergence, of $1.4 million, $6.3 million and $26.5 million for the year ended December 31, 2021, the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019, respectively, which are included within Other income (expense), net in the Company's Consolidated Statements of Comprehensive Income (Loss).

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