Radio Broadcasting Company in a Top-25 Market

Chapter 11 bankruptcy resulting in sale to new owner

HAMSTREET ROLES:  Interim Management, Operational Turnaround, Financial Restructuring

SUMMARY:  Over-priced purchase of radio station followed by poor ratings, fraudulent management, and collapse of national radio markets stranded lender with minimal prospect of recovery. Hamstreet cleaned up operations, restored value with successful, innovative programming, and found a buyer.

THE BACKGROUND:  In the inflated radio market of the mid-1980’s, an elderly New England gentleman borrowed $12 million, secured in part by his personal guarantee, to purchase a Northwest radio broadcasting company with a basic licensed stick value of $2.7 million. He then entrusted operations to his partner on the west coast. Under the partner’s watch, the company’s AM and FM programs plummeted to the bottom of the ratings and failed to attract advertisers; meanwhile, the bubble burst in the radio market, exposing the bank to an unrecoverable loss. The station fell out of compliance with the FCC and failed to pay payroll taxes. Faced with an overwhelming personal disaster, the owner defaulted on his loan. The bank hired Hamstreet to pick up the pieces as best we could.

THE CHALLENGE:  We convinced the lender to support operations as the only way to retain the broadcasting license and what was left of the station’s value. We then discovered that the station manager—in addition to driving away several saleswomen through inappropriate conduct—had absconded with over one million dollars’ worth of bartered goods and services, leaving a stack of unfulfilled ad commitments in his wake. The broadcaster was left with a decimated staff, no management, unpopular programming, hundreds of hours’ worth of ad tapes it was committed to play, and the IRS out to shut its doors.

THE RESULTS:  We put the station in bankruptcy and brought order to the financial operations, then turned to the company’s personnel for radio advice. Despite its recent troubles, this small but scrappy group possessed a strong morale and offered bold, creative ideas for new programming, coupled with an inexpensive and clever publicity strategy. In comparison, the lender’s broadcasting expert submitted a no-risk, minimal-gain plan with an overall projected increase of only 1.4 market rating points. We opted for the staff’s recommendations. Within months, advertisers were clamoring for air time, the company’s AM and FM formats had climbed from fifteenth to second place in the regional ratings, and we had found a buyer.

Our most gratifying result in this case, however, was securing the lender’s release of the unfortunate owner and his invalid wife from their ruinous personal guarantee. Through our success with the station and our negotiations with the buyer, we persuaded the bank to let this couple off the hook.