22 Jul 2016 Cases

Texas District Court Rules in Favor of Compass Lexecon Client iHeartCommunications, Inc. in Valuation Dispute

2 minute read


Compass Lexecon President Professor Daniel R. Fischel Testifies Successfully at Trial

The Defendants in this matter, owners of iHeart Priority Guarantee Notes, served Notices of Default on March 7, 2016, after iHeart transferred 100 million non-traded Class B shares of iHeart subsidiary Clear Channel Outdoor Holdings, Inc. ("CCOH") to Broader Media, Inc., another iHeart subsidiary. Defendants claimed that the share transfer violated indentures governing the Priority Guarantee Notes because it exceeded the amount iHeart was allowed to move from restricted subsidiaries into subsidiaries not governed by the indentures. iHeart then brought a declaratory judgment action seeking to rescind the Notices of Default.

At trial in the District Court of Bexar County, Texas, Defendants submitted Discounted Cash Flows (DCF) and Comparable Company Multiples analyses purporting to show that the value of the transferred Class B shares vastly exceeded the amount permitted under the indentures. In response, Compass Lexecon President Professor Daniel R. Fischel opined that Defendants' analyses were fundamentally flawed and irrelevant given the existence of a public market price for CCOH's Class A shares, which under the circumstances of the case provided the most reliable basis for valuing the transferred non-traded Class B shares. Given the existence of a publicly traded market price for the Class A shares, Professor Fischel stated that the use of alternative valuation methods such as DCF and Comparable Company Multiples were wholly unnecessary. Professor Fischel also explained how these alternative valuation methodologies, if analyzed correctly, produced results consistent with the publicly traded market prices of the Class A shares. Having determined that the best estimate of the value of the non-traded Class B shares was the market price of the publicly traded Class A shares, Professor Fischel concluded that the value of the transferred Class B shares did not violate the terms of the indentures.

In a series of post-trial rulings, Judge Cathleen Stryker rescinded the Notices of Default, agreeing with Professor Fischel that the fair market value of the iHeart Class B shares transferred to Broader Media was equal to the public market price of iHeart's Class A shares on the transfer date, and thus the transfer did not violate the terms of the indentures.

Professor Fischel was supported by a team at Compass Lexecon led by Jessica Mandel that included Clifford Ang and Andrew Roper in our Oakland office, and Rajiv Gokhale, Jonathan Polonsky, Margaret Hlebowitsh, and Edward Crane in our Chicago Office. We worked with Kevin B. Huff, David L. Schwarz and Leslie V. Pope of Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC who successfully represented iHeart.

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