Regent Communications Inc (fka RGCIQ)

[BurrTim]

This came out this morning.



Shareholder Seeks Equity Committee in Regent Communications Bankruptcy
Posted by Randall Reese on Thursday, March 25, 2010 Labels: bankruptcy, chapter 11, common stock, equity committee, kevin gross, official committee, regent communications, resilient capital, shareholder, shareholders committee

Resilient Capital Management, LLC, which holds 6.6% of the common stock of Regent Communications, Inc., filed a motion on Tuesday asking the bankruptcy court to direct the appointment of an Official Committee of Equity Security Holders in the company's chapter 11 cases. Regent Communications and its affiliates operate 50 FM and 12 AM radio stations in 13 markets located in nine states. The companies filed for chapter 11 protection on March 1, 2010 and immediately filed a proposed plan of reorganization, which is supported by General Electric Capital Corporation and Oaktree Capital Management, L.P. GE Capital and Oaktree collectively own over 75% of outstanding first lien debt claims against Regent.

Under the proposed plan, general unsecured claims would be paid in full but existing equity would be canceled. Existing equity holders would receive their pro rata share of $5.5 million (approximately 13 cents per share), which is characterized as a "gift" because the debtors assert that existing equity is out of the money. The debtors' assertion regarding the value of existing equity is supported by a valuation prepared by Oppenheimer & Co. Inc. In Tuesday's motion, Resilient Capital challenges the conclusions in Oppenheimer's report. Specifically, Resilient claims that Oppenheimer's valuation is "artificially depressed" due to several aspects of Oppenheimer's valuation methodology. According to Resilient, Oppenheimer's valuation contains the following weaknesses:

Oppenheimer's valuation "relied on only five out of the eight comparable companies in the radio industry identified by Oppenheimer."
"Oppenheimer utilized a multiple range of seven to eight times the latest twelve month EBITDA based upon those five comparable companies. However, these five companies trade at lower multiples than would be warranted for [the] Debtors [and, in] addition, the last twelve month average EBITDA multiple for those five companies was 9.36 times EBITDA."
The "three companies eliminated from Oppenheimer's valuation were the three companies with the highest, latest twelve month EBITDA multiples. These were also the three of the companies closest in size to Regent."
"If Oppenheimer had derived its EBITDA multiple from the full set of comparable company data, the EBITDA multiple would have - and should have - been 11.02 times the latest twelve months of EBITDA."
Utilizing Oppenheimer's valuation of Regent resulted in a net asset value of negative $50 million available for common shareholders. However, Resilient Capital's proposed modifications to Oppenheimer's methodology would result in a net asset value of $36 million (or approximately 83 cents per share). Resilient also performed a discounted cash flow (DCF) valuation, which it asserts results in $57 million of net asset value available to common shareholders (or $1.32 per share). The DCF valuation is based, according to the motion, "on taxing unlevered income at a 40% tax rate and discounted cash flows at an 11% rate, a discount rate utilized by Oppenheimer in its own analysis." All calculations of shareholder value assume $206.7 million in pre-petition liabilities and $3.9 million in restructuring costs.

As a result, Resilient claims that "there is a substantial likelihood that there is sufficient equity value in the Debtors to distribute to the common equity holders." Appointment of an equity committee is necessary, according to the motion, because common shareholders "will not be adequately represented in these cases without the appointment of an official committee." Resilient asserts that management of Regent has an incentive to support the existing proposed plan of reorganization because the plan reserves 8% of the equity in the reorganized company for management. The motion also alleges that an official committee is necessary because individual shareholders lack the resources to play a meaningful role in the plan negotiations. Moreover, existing large shareholders are "inhibit[ed from getting] economies of scale out of working with others or increasing the size of their position" by Section 13(d) of the Securities and Exchange Act of 1934 and a court order limiting equity transfers to protect Regent's net operating loss carryforwards for tax purposes.

Of particular interest, Regent Communications, Inc.'s bankruptcy cases are assigned to Judge Kevin Gross. On the same day that Resilient filed its motion seeking an equity committee, Judge Gross entered an order in the TLC Vision (USA) Corporation bankruptcy cases denying a similar request for appointment of an equity committee in those cases. Information regarding that order can be found in an earlier blog post, available here.

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