iHeart legacy notes trustee lawsuit calls for equal treatment of debt

By Caroline Salls

Pittsburgh, March 21 – iHeartCommunications, Inc. 2018 and 2027 legacy notes trustee Wilmington Savings Fund Society, FSB filed a lawsuit against the company Wednesday in the U.S. Bankruptcy Court for the Southern District of Texas.

The trustee said the legacy noteholders agreed to be unsecured when in the notes were issued in 1997 by a solvent iHeart, but that agreement was “subject to a clear right, spelled out in the indenture, to be equally and ratably treated with any future secured debt.”

“This adversary proceeding involves an effort by defendants to wrongfully deprive the legacy noteholders of the benefit of that bargain,” the filing said.

Specifically, the trustee said the company “engaged in a series of secret and deceptive transactions that provided mortgages for the benefit of holders of priority guarantee notes, which were both hidden from and denied to the legacy noteholders.”

However, Wilmington said the notes indenture prohibits the company and the subsidiary debtor defendants from granting mortgages on principal property and other assets to secure debt issued to other creditors without ensuring that the legacy noteholders are secured equally with the other debt.

According to the adversary proceeding, by providing security to the PGN holders without also elevating the legacy noteholders to secured status “was a breach of the legacy noteholders’ indenture with iHeart, and all defendants knew that.”

iHeartCommunications is a subsidiary of iHeartMedia, Inc., a media and entertainment company based in San Antonio. The company filed bankruptcy on March 15 under Chapter 11 case number 18-31274.

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