NOT AN ANALYST

Citadel Broadcasting filed a voluntarily petition under Chapter 11 on December 20 2009 with a pre packaged restructuring plan supported by more than 60% of it secured lenders. The Company listed 2,464 mm in liabilities and 1,400 mm in assets. The First Day Motions were granted today and the Company will use 36 mm of cash on hand plus cash generated from operation to conduct business during the bankruptcy proceeding. No DIP financing will be needed.

Business Overview The Company is a major player in the radio broadcasting industry and it operates through two segments: Citadel Radio, which owns and operates radio stations across the country and accounts for two thirds of the revenue, and Citadel Media, which produces news and talk programming.

Capital Structure The Senior Revolving and Term Facility were amended for the fourth time on March 26 2009 to include a monthly EBITDA test and monthly liquidity test. The Company anticipated that it will be in compliance with its covenants through the end of 2009 (150 mm EBITDA and 25 mm in cash) but it didn’t expect to meet the financial covenants requirements on January 15 2010 (150 mm of cash on hand, 30 mm in cash anytime, postpone maturity date of convertible to on or after 2014 and Senior Secured Debt leverage of 6.75x by December 2010).

 One of the main balance sheet issues for Citadel Broadcasting is over leverage. The Company was able to do get away with high debt levels in 2007 and prior years due to lax financial covenants and lack of impairment tests of goodwill and intangibles. The Plan of Reorganization will cut 1,400 mm in debt and will address the over leverage issue, but I am not sure how happy Secured Debt holders will be. I have not worked the numbers yet, but it might take few years for them to recover their principal amount in terms of equity appreciation. I will work out a model in the coming weeks.

Plan of Reorganization  The pre petition Secured Creditors will receive a pro rata share of a new Term Loan in the principal amount of 762.5 mm with a 5 year term @ LIBOR + 800 bps and 90% of the new common stock. The Convertible Note holders will have the option to receive a pro rata share of 10% of the new common stock or cash equal to 5% of unsecured claims (capped at 2%). Common stock, preferred, options, warrants will be cancelled.

EBITDA Forecast The Company is going to end up with 180 mm in EBITDA in 2009, a 28% drop from the previous year. In the next 3 to 4 years, I expect EBITDA to grow in at 2%-3% rate each year, far away from the 11%-12% growth rate experienced in 2006-2007, after the ABC Radio merger in February 2006. Besides the economic downturn, that is still keeping advertising expenses low, the demand for advertising is shifting from radio to online technologies like Google. People surf the web more than they listen to the radio, so why should you advertise your product on the radio? On top of that, the Company recognizes six industries that generate most of revenue: automotive, retails, medical, financial, entertainment and food stores. Three out of the six are still experiencing cost cutting and low top line growth, so it’s tough to project double digits EBITDA growth levels for the coming years. Stick around for more forecasting and valuation analysis in the next few weeks.

Accuride Business Overview Accuride is a manufacturer and supplier of commercial vehicle components in North America. The products include wheels, truck body parts, seating assembly and other vehicle parts. The Company operates in a highly competitive and cyclical market as it’s largely dependent on the overall strength of the demand for heavy and medium-duty trucks.

Path to Bankruptcy The automotive industry was severely affected by the economic downturn and the prolonged lack of demand for commercial vehicle significantly affected the Company’s operations. In the 2Q of 2009, a series of temporary waivers with respect to the Credit Facility were implemented, as the Company determined that it would likely be in violation of certain financial covenants. The Company also entered in series of forbearance agreements with the Senior Subordinated holders as the interest payment due August 3^rd wasn’t honored.

Restructuring Plan After a series of negotiations, the Company reached an agreement with its creditors for a pre-packaged restructuring plan. At emergence, the Company anticipates 290.1 mm in secured debt and 435.5 mm in consolidated debt. The Plan was announced on October 8 and the terms are

• The Credit Agreement, which is the Term Facility 56.07 mm and the Revolving Credit Facility 224.6 mm, will be amended with interest of LIBOR + 675 bps maturing on June 30 2013 and an annual cash flow sweep of 75% with first sweep date on 1Q 2012 (after meeting a minimum liquidity of 25 mm a month).
• 275 mm Senior Sub 8.50% due 2015 will be cancelled and note holders will receive 98% of the common stock of the reorganized Company and 140 mm of a new Senior Convertible note.
• The new Senior Convertible note will mature in 10 years with the first six payment made PIK and the remaining payable in cash at 7.50%. Part of the proceeds from the issuance will be used to repay 70 mm of the “Last-Out” Sun Capital Loan, which is a loan outstanding under the Credit Agreement
• Equity holders will receive 2% of the new common stock and warrants to purchase up to 15% of the reorganized Company, exercisable in 2 years and only at a strike price that is 110% of par recovery on the Senior Sub notes from the day of restructuring.
• The Company secured a DIP loan consisting of 25 mm @ LIBOR + 6.750% plus another 25 mm @ LIBOR plus 7.750%, both maturing in 9 months.

Capital Structure The Company has 275 mm of Senior Sub notes due 2015, a Revenue Bond for 3 mm, a Revolving Credit for 56.07 mm and a Term Facility for 294.6 mm.  Senior Sub CUSIP 004398AE30R0 or ARUC.GD @ 8.50% due 2015

Valuation The model is basically an LBO, there is a cash flow sweep used to pay down debt and the equity value is calculated from the EV. On an 8K filed on 10/15, the Company provided very useful information about future operating earnings, and I used projected EBITDA to estimate how much FCF will be generated in the next four years. I expect working capital needs to increase up to 108 mm in 2011, and then be stable afterwards; capital expenditures will be 25 mm in 2010 and the go down to 20 mm until 2013. The Company is expecting demand to pick up significantly in the coming years, especially in 2010 and 2011, and it will need to buy inventory and sell items on credit. During peak cycle in 2005-2006, working capital was between 101 mm and 106 mm with EBITDA between 196 mm to 211 mm and capital expenditures ranging between 40.7 mm to 47.6 mm respectively. Cash at filing was 12 mm per the Affidavit from the CFO.

The Equity Value If you would be buying all the Sub notes, how much would you get in return? 98% of post re-org equity seems a lot, but it will be diluted to 50% after 4 years, assuming half of the convertible note or 70 mm will be converted upon issuance, and rest by 2012 (see the Convertible note schedule under “Assumptions” on the spreadsheet). Further dilution comes from the warrants which will be eligible to be converted into 15% of post re-org equity in 2012. Senior Sub holders will be able to recover around 50% of the principalpar value of their bonds in 2010. That doesn’t seem much but the appreciation potentialis great. In 2011, the equity will be valued at 314 mm, an annualized IRR of 23%, which includes dilution from the conversion of the Convertible note and warrants. In the years to follow, the equity grows but dilution decreases your return potential significantly. In 2013, the Company will generate almost 1,200 mm in equity but you will own only 700 mm. You could sell your investment for a 32% IRR, excluding the interest accrued on the Convertible note. Its a little light considering al the risks involved in the transaction. 

Conclusion Probably the best year to sell your investment would be 2012, as one more year will not give you much more return. You can buy the Senior Sub @ 85 cents on the dollar and 2 years after emergence you will get a 31% IRR annualized on your equity value, which includes the conversion of 100 mm of the Convertible note, but excludes interest on the convertible note. It’s a good plan of reorganization for the Company as leverage decreases and equity increases significantly over the years but dilution creates a drag on investors’ returns.