WLS-parent Citadel violates reorganization

Citadel Broadcasting Corp., a Las Vegas-based owner of 224 radio stations, violated the terms of the confirmed reorganization plan by making stock awards to the chief executive officer and board, R2 Investments LDC alleged in a bankruptcy court filing last week.

Locally, Citadel owns WLS 890-AM and WLS 94.7-FM.

R2, which supported the Citadel Chapter 11 plan implemented in June, says that management and directors gave themselves stock worth $110 million while the plan only permitted granting options to vest over three years at strike prices equaling the market or higher.

R2 said the stock grants to management and directors were a “shocking display of corporate greed and dishonesty.” The creditor said that whether to issue stock or options to management was a “hotly contested topic during the bankruptcy process.”

R2 wants the bankruptcy judge at a Nov. 3 hearing to enforce the plan and compel the stock to be given back. Otherwise, Citadel will stand as a “blueprint for all other management teams to emulate in order to loot company coffers.” R2 called the stock awards “one of the most egregious frauds by a company emerging from bankruptcy under Chapter 11.”

The papers by R2, filed Oct. 6, say that stock awards cost creditors 7.5 percent of the value of the shares they received under the reorganization plan that was confirmed on May 19.

R2 contends that Chief Executive Officer Farid Suleman received $55 million in stock while each board member was given stock worth $1.35 million.

R2 reserved the right to seek revocation of plan confirmation on account of fraud. A call to a lawyer at Kirkland & Ellis LLP, attorneys for Citadel, was returned.

The predicted recovery for Citadel's secured creditors was 82 percent. For unsecured creditors, it was 36 percent.

Citadel has operations in more than 50 markets. It filed a prepackaged Chapter 11 petition in January. The creditors' committee supported the plan after a settlement improving treatment of unsecured creditors. Citadel and subsidiaries listed assets of $1.4 billion against debt totaling $2.46 billion. Citadel is the third-largest radio station owner in the U.S., with 166 FM and 58 AM stations.

After emergence from Chapter 11, Citadel stock traded sporadically in the over-the-counter market. The last reported trade was $22.88 on Oct. 8.

The case is Citadel Broadcasting Corp., 09-17442, U.S. Bankruptcy Court, Southern District of New York (Manhattan).