As foreshadowed in our High Risk Report in May 2017, the "worst case scenario" unfolded for Cumulus Media Inc. The radio station owner filed for Chapter 11 bankruptcy restructuring in late November. Notably, its FRISK® score of "1" had indicated heightened bankruptcy risk for more than one year prior that event, particularly when compared to the broader Radio Broadcasting industry as seen below:
This Bankruptcy Case Study will demonstrate key risk factors that appeared on the CreditRiskMonitor service prior to Cumulus' eventual failure. The company's poor leverage metrics were particularly concerning, specifically as its total-debt-to-EBITDA ratio became extremely elevated by the first quarter of 2017. Shortly thereafter, Cumulus management began talks with its lenders and bondholders to address its unstable capital structure. Chapter 11 was, unfortunately for unsecured creditors, the outcome of those discussions.
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Our FRISK® score model incorporates four powerful risk inputs:
- “Merton”-type model of stock market capitalization and volatility
- Financial ratios, including those used in the Altman Z”-Score Model
- Bond agency ratings from Fitch, Moody's, and DBRS Morningstar
- Website click pattern data from CreditRiskMonitor® subscribers, representing key credit decision-makers at more than 35% of current Fortune 1000 companies plus thousands of other large companies worldwide
Since the start of 2017, the FRISK® score’s rate of success in capturing public company bankruptcy is 96%. In any given year, you can count on one hand the times we miss – and in those outlier cases, the circumstances deal with unusual, unforeseen events such as natural disasters and CEO fraud.
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About Bankruptcy Case Studies
CreditRiskMonitor® Bankruptcy Case Studies provide post-filing analyses of public company bankruptcies. Our case studies educate subscribers about methods they can apply to assess bankruptcy risk using our proprietary FRISK® score, robust financial database, and timely news alerts.
In nearly every case, a low FRISK® score gave our subscribers early warning of financial distress within a one-year time horizon. Our proprietary FRISK® score predicts bankruptcy risk at public companies with 96% accuracy. The score is formulated by a number of indicators including stock market capitalization and volatility, financial ratios, bond agency ratings from Moody’s, Fitch and DBRS, and crowdsourced behavioral data from a subscriber group that includes 35% of the Fortune 1000 and thousands more worldwide.
Whether you are new to credit analysis or have decades of experience under your belt, CreditRiskMonitor® Bankruptcy Case Studies offer unique insights into the business and financial decline that precedes bankruptcy.