Media Rules Complicate Restructurings

Wall Street lenders are tripping over federal media-ownership rules as they find themselves the unexpected owners of several distressed radio, television and newspaper companies. The issue has taken center stage at Citadel Broadcasting, as one of the US's largest radio broadcasters races to revamp its balance sheet. Citadel has offered senior lenders owed $2 billion -- including JP Morgan Chase, General Electric's GE Capital and ING Groep NV -- a deal that would exchange a big chunk of debt for equity. Some lenders have been caught off-guard by Federal Communications Commission rules designed to limit concentrated holdings of media firms. The snag shows another unintended consequence of the credit boom: Lenders are being forced to take on equity stakes of companies that borrowed large amounts of debt and now can't make payments and must restructure. But for big banks and hedge funds holding debt in everything from radio and television stations to newspapers, FCC rules have made restructurings more complex. The FCC must approve media sales and has specific rules that limit ownership of multiple media outlets in individual markets, even when such shareholder stakes are small. The calculus can be even more difficult for hedge funds, some of which are registered offshore. The FCC caps foreign ownership at 20% of a U.S. broadcaster -- 25% if the stake is through a holding company -- which can change how new ownership stakes are structured. Many investors were aware of the rules when they made the loans. But few likely contemplated a historic financial crisis and advertising downturn that would upend scores of firms.