iHeartMedia: An Underpriced 'Call Option'

Chimerix Research
120 Followers
(9min)

Summary

  • iHeartMedia's recent debt exchange and partial restructuring significantly increase equity value, presenting an undervalued "call option" with a potential upside of 30-50%.
  • The company faces challenges from a declining radio broadcasting sector and high leverage, but digital diversification shows promise.
  • The restructuring plan extends debt maturities to 2029-2031, reducing debt by $500 million and buying 2-3 more years for equity.
  • iHeartMedia's strong digital segment and strategic position in content production enhance its valuation, suggesting a fair equity value of $2.5 - $3.0 per share.

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Milan Markovic/E+ via Getty Images

When things go wrong at highly levered companies, the equity becomes a “stub”, meaning that its value is only derived by its convexity. That is, the probability that before an actual restructuring and debt equitization, things might go better than

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