Here’s yet another twist in the convoluted saga of the bankruptcy filing of the Gazette’s parent, Freedom Communications.
In the palmy days of yore, JP Morgan Chase, Freedom’s largest secured creditor, apparently had an insatiable appetite for short-term debt issued by now-forlorn media titans. The bank is also the lead secured creditor of two other media bankrupts, the Tribune Company and the Journal Register Company. To add to Morgan’s woes, the bank is also the largest creditor of Citadel Communications, which describes itself as the “largest pure radio play” in the investment universe.
Citadel’s not feeling the love any more, as advertising revenue has plummeted during the recession, so the company is negotiating with Morgan and other secured lenders to convert $2 billion in debt to equity.
That creates a series of complex legal dilemmas for Morgan, particularly in the Colorado Springs market.
Rules enforced by the Federal Communications Commission generally prohibit cross-ownership of media in a market when such ownership would create, or be likely to create, a monopoly. Here in Colorado Springs, Citadel owns six radio stations (KATC, KCSF, KKFM, KKMG, KKPK, and KVOR), twice as many as does competitor Clear Channel, and has a substantial chunk of the local advertising market.
So what happens when/if Morgan emerges as the de facto owner of both the Gazette and of Citadel’s local stations? The bank would have to clear its ownership with the FCC. In theory, the FCC could require that the bank immediately divest itself of certain such overlapping properties, which occur in a number of markets served by both Citadel and one of the three bankrupt media companies.
Colorado Springs may be a particularly egregious case, since it would be hard to argue that ownership of a monopoly daily newspaper and six local radio stations would not tend to create a local communications monopoly, to the detriment of both competitors and the public.
It’s possible-even likely-that the clever lawyers and investment bankers that represent Morgan will figure out structures that will satisfy the FCC, at least in the short run. But in the long run (and “long” means within a year or so), Morgan and its fellow creditors will have to bring their ownership positions into regulatory compliance.
If, after a year, Morgan owns/controls both Citadel and Freedom, the bank might solve its FCC problems by selling either the radio stations or the Gazette to local investors. Morgan might find lots of potential buyers, particularly if they offered attractive terms-for example, no money down, no payments for 90 days, free checking, and a six-slice toaster!