Bankruptcy Red Flags for Troubled Spanish Broadcasting Systems, Inc.
Everyone has been talking about whether Cumulus and iHeartRadio will file for bankruptcy this year.
But Spanish Broadcasting Systems Inc. often flies under the radar — all the while, feeling the pinch of its own financial struggles. This company reaches 90% of the U.S. Hispanic audience through television and radio stations, mainly in large markets.
In today's post, we look at why Spanish Broadcasting may beat their financially distressed peers to a bankruptcy filing in 2017.
See the financial red flags: Read Spanish Broadcasting's High Risk Report
Overleveraged media companies, elevated risk
Many radio conglomerates bought station after station after ownership deregulation in the 1990s, piling on huge amounts of debt in the process, with those purchases.
Fast forward twenty years. Radio listening is on the decline. The industry has been disrupted by new media consumption habits. And today, only 68% of 18–34 year olds even own a radio, preferring streaming services for their music.
As media companies lose listeners and ad dollars, advertisers have cut spending. Revenue drops and losses can deepen. For the most leveraged, it can become harder to service debt from operating revenue, causing cascading financial problems.
That can translate to increased bankruptcy risk in any language:
- The FRISK® Stress Index for the radio broadcasting industry shows a 168% increased risk of business failure, compared to the period before the last financial crisis.
- The biggest radio player, iHeartRadio, has entered the streaming space with their free app, but that diversification is unlikely to overcome the company’s $20.6 billion in debt.
- The #2 company, Cumulus, had been in talks to restructure debt, but those negotiations have broken down.
What's behind Spanish Broadcasting’s woes?
Drilling into Spanish Broadcasting Systems’ latest financials, it becomes clear that the industry issues plaguing their peers are hitting them just as hard. And serving a niche market, even one that is growing steadily, isn’t helping them move past the overall trends of fewer listeners and dwindling relevance.
Here are some of the recent financial red flags our credit risk monitoring service has observed:
- The company ranks in the bottom quartile of their peer group for liquidity and debt ratios
- Net losses for the past five business quarters
- A ratings downgrade during 2016, based on perceived lack of ability to repay notes due in mid-2017 (Standard & Poors)
- Failure to meet listing requirements, as NASDAQ suspended, then delisted, the company’s common stock
- Short-term debt skyrocketed to 100% of total debt in 2016, straining the company’s working capital
- The company's FRISK score — 96% accurate in predicting bankruptcy — remains at a 1, in the reddest of the ‘Red Zone’, signaling up to a 50% chance of business failure in the next 12 months.
For a more in-depth look at Spanish Broadcasting Systems’ deepening financial distress, read the complete bankruptcy High Risk Report.
Detecting Danger for Public companies: Don’t be fooled
If you’ve been using a payments-based credit score to gauge the creditworthiness of your public counterparties, a word of warning: A financially distressed company like Spanish Broadcasting Systems might never appear on your radar. But that doesn’t have to be the case.
As the research shows, many public companies continue to pay their bills, right up until the day they file for bankruptcy. So, an industry-standard credit risk metric for private companies, like a payments-based credit risk score, often completely misses the risk for publics.
With a recent DBT Index in the 9-10 range, that’s also the case for Spanish Broadcasting Systems.
But even though public companies don’t behave like private companies when it comes to trade payment history, there’s still a way to be warned in time. Tracking the FRISK® financial risk score for all the public companies in your credit portfolio is the best way around this.
With an accuracy track record of almost 99% for the last two years (and 96% over the last ten), the FRISK® score detects trouble well before it arrives.
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CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.