The recovery in radio advertising continued this spring, even if the industry's convalescence looks far from complete. Sales grew in the first quarter, building on expansion that began in 2010. The early numbers from the second quarter demonstrate the fragility of the rebound. The pace of auto spending has weakened, reflecting the impact of the Japanese earthquake and tsunami on car and auto parts makers. Rising gas prices have hurt spending at restaurants, bars and other local businesses that often buy local radio spots.

The comps will get tougher in the latter part of the year when the industry starts to measure its progress against quarters from 2010 that benefited from campaign spending.

The deeper concern, however, is that radio may suffer the disabling conditions that have beset newspaper and telephone directory publishers. To many, it is still too early to declare that the radio industry's pain ended with the great recession, and that Pandora Media Inc., iTunes and others will not finish the job that video started.

In the view of Lew Dickey, chairman and CEO of Cumulus Media Inc., the comparisons to print are conclusively off target. "As time goes on, people will find there is no secular problem with this medium," he says. "It was a cyclical problem because the industry was overexposed to the mortgage industry, housing, automotive, restaurants and bars."

The radio industry has often looked to Clear Channel Communications Inc., with its $3 billion in revenue and more than 800 stations, as a bellwether, especially in large markets. The San Antonio radio group hired Bob Pittman last fall to run its media and entertainment efforts and to develop its digital strategy. In a sense, the once-wunderkind founder of MTV Networks and former America Online honcho will serve as a Wall Street pitchman not just for Clear Channel but for the entire industry.

With Cumulus' pending $2.4 billion purchase of Citadel Broadcasting Corp., however, Dickey will also have a more prominent voice. Clear Channel and CBS Corp. generate more revenue from radio operations than Cumulus. But with 570 stations following the closing of the Citadel deal, Cumulus will become the largest publicly traded, purely radio group, with the most ample margins in the business. Unlike CBS, Cumulus has stated its intent to consolidate the still-fragmented industry.

But while Clear Channel and Cumulus increasingly look like proxies for the radio industry, they face starkly different near-term challenges and prospects.

Clear Channel is preparing to navigate monstrous debt maturities in 2014 and 2016 that, despite its size, will require deft maneuvering. For now, private equity backers Bain Capital LLC and Thomas H. Lee Partners LP are underwater on the leveraged buyout after their on-again, off-again, on-again privatization leveraged Clear Channel to the hilt.

Cumulus, meanwhile, will actually improve its debt ratio after its acquisitions of Citadel and of a private equity-backed vehicle. Dickey plans to continue acquiring stations in top markets with his backers Crestview Partners LP and Macquarie Capital.

For all the ups and downs, Clear Channel and Cumulus both reflect private equity's fascination with radio, and with the difficulty of leveraging such cyclical businesses. Like Clear Channel, Cumulus itself explored a 2007 LBO; if that deal had closed, there is a good chance that Dickey's company would be bankrupt today -- or worse.

The resolution to these two stories -- Clear Channel's continuing debt woes and Cumulus' expansion -- may provide some clues to where this industry is heading: Is radio, which is just over a century old, a hobbled, old-guard medium just trying to hang on, or is it a vital industry capable of growth and change? Furthermore, does private equity have a major role in such a cyclically sensitive business?

Although Clear Channel's 2008 LBO received the lion's share of media attention, mostly because of its size and the litigation that broke out between the parties and their banks, Cumulus was actually the first to launch an ambitious deal with private equity.

In 2005, Cumulus partnered with Bain Capital LLC, Blackstone Group LP and THL to bid for the radio assets of Susquehanna Pfaltzgraff Co. The buyout group, known as Cumulus Media Partners LLC, prevailed with a $1.2 billion bid in the October 2005 auction and closed the deal in 2006.

Acquiring Susquehanna was only part of the original plan. Bain, Blackstone and THL each put in about $80 million, a modest sum for firms of that size. "It had always been the goal to be a major [radio] consolidator," Dickey says. "I was looking for deep-pocketed sources to create the other Clear Channel."

The hitch came just a few months after the Susquehanna deal closed. Bain and THL announced that they had much larger quarry, the $26.7 billion LBO of Clear Channel.

With two out of three private equity partners making such a large commitment to a rival, further dealmaking through Cumulus Media Partners became problematic, to say the least. "CMP went from being a consolidator to being an orphan," Dickey says.

Dickey then came up with Plan B. In July 2007, Dickey and Merrill Lynch Global Private Equity agreed to take the Atlanta broadcaster private for $1.3 billion. Dickey would also raise a $500 million private equity fund, or sidecar, to roll up radio stations.

The timing was less than auspicious, however. The financing markets began to shut down shortly after the deal was announced. As the debt crisis thickened, Merrill's commitment began to look more and more perilous. Finally, in May 2008, the Dickey-Merrill buyout group paid Cumulus a breakup fee and quietly walked from the deal.

Meanwhile, in San Antonio, Clear Channel's leveraged buyout followed its own tortuous course. Initially, disagreements over price delayed the transaction. Bain, THL and the Mays family, which co-founded and ran Clear Channel, had offered $37.60 per share in November 2006. They boosted the offer to $39.20 in May 2007 and gave minority investors the ability to take equity in the post-buyout company.

When shareholders approved the buyout in September 2007, the LBO encountered the same problems that Dickey and Cumulus were facing over financing: The banks, which had agreed to back it, wanted out. As Clear Channel, its PE backers and banks bickered, the transaction seemed to grind to a halt.

In March 2008, the disputes took an ugly, public form. Bain and THL took the extraordinary step of suing Citigroup Inc., Deutsche Bank AG, Credit Suisse Securities (USA) LLC, Morgan Stanley, Royal Bank of Scotland Group plc and Wachovia Corp. in New York state to enforce the letters of commitment underpinning the buyout. In separate litigation, Clear Channel and the buyout firms filed tortious interference claims against the banks in Texas.

Ultimately, the parties settled. The Clear Channel LBO finally closed in July 2008, at $36 per share, or about $24 billion including debt.

However, the problems did not end with the litigation. In 2009, as the recession worsened, the company risked violating its debt covenants as its leverage inched closer and closer to its limit of 9.5 times Ebitda. Clear Channel skirted the problem at the end of 2009. Clear Channel Outdoor Holdings Inc., the publicly traded outdoor subsidiary in which Clear Channel holds an 89% stake, issued $2.5 billion in notes. Clear Channel Outdoor repaid obligations to the parent, which removed the threat of default.

The next challenges loom in 2014 and 2016 when Clear Channel faces maturities of $3.7 billion and $12.1 billion, respectively. The company will not be able to cover both sets of maturities with cash from its operations and its balance sheet. Clear Channel CFO Thomas Casey described the process in the company's first-quarter earnings call in May as "a balancing act of speed and cost."

To be sure, the balancing act has already begun. In February, the company announced a $1 billion bond offering that reduced some of the obligations. It also reached an agreement with lenders that will allow for future extensions and amendments to its maturities.

Neil Begley of Moody's Investors Service called the bond deal and the amendment flexibility a "little bite of the apple."

Because Clear Channel's obligations were put in place when it was investment grade or when debt was cheap, refinancing could greatly increase its cost of capital. "They have to see if they can grow in the next couple of years, generate higher free cash flow, grow Ebitda, reduce their leverage gradually and live with the existing balance sheet," Begley says.

The company should benefit from the lower interest rates of their current debt and then strike in 2014 to 2015, he suggests, assuming that the economy and the credit markets are favorable. "The stars have to be very well aligned for them to be successful," Begley says.

In the coming years, the company may have to rely upon a combination of bond offerings, amendments, extensions and other steps. If pressed, Clear Channel could reduce its stake in the outdoor subsidiary or sell some of its stations.

The company will likely rely on a combination of measures. "If you get improving results out of outdoor and radio, you can see how they can chip away at and potentially deal with the 2014 maturity," says Jefferies & Co. analyst Jonathan Levine.

Clear Channel could also raise new debt to take out obligations that come due before 2014. "The company is sitting on $1.5 billion in cash," Levine adds. It may produce $250 million or so in free cash flow this year and $300 million in 2012 and 2013, giving it more than $2.3 billion. "I can see how they can potentially get by 2014," he says. "I don't see how they can get by the next piece, which means they probably have to address it all when they get to 2014."

Clear Channel's Casey said during the last earnings call that the company has received "very favorable feedback from the investors that we visited and met with" regarding its efforts to manage its debt. A company spokesman added that the new notes have traded well since the February offering.

However, Michael Altberg of Standard & Poor's says that "significant refinancing risk" still exists. "If Clear Channel does look to amend and extend terms of this debt, it has to be at interest rates it can absorb. Especially since we think there could be structural risks to radio beyond the current cyclical rebound."

Dickey's latest dealings with private equity represent the proverbial third time, after Cumulus' previous attempts with CMP and the aborted Merrill buyout. "I went out to private equity to essentially create CMP again," he says.

In April 2010, Cumulus and private equity firm Crestview Partners announced that they would jointly spend $1 billion to acquire radio stations. Crestview committed $500 million to what would be an off-balance-sheet vehicle. The parties looked at deals for several months before targeting Citadel.

Fresh out of bankruptcy protection, Citadel initially rejected Dickey's advances. Farid Suleman's radio group was already wracked by shareholder angst, however, and could not hold out when Cumulus boosted its offer. "The deal is going to be deleveraging," S&P analyst Jeanne Shoesmith says of the Citadel acquisition. "It also allows Cumulus to expand its scale and improve its geographic diversity. Potentially they could get some pricing power from the increased scale."

Dickey had originally planned to make acquisitions with Crestview through an off-balance-sheet entity. The size of the Citadel purchase caused Dickey to change his approach. "This was too big of a deal to do on an off-balance-sheet company," he says.

Crestview's cash became a private investment in public equity, or PIPE, rather than an investment in a side entity. Macquarie also committed capital.

As the Citadel plan began to gel, Dickey also reached out to his private equity cohorts at CMP. "It made sense to bring CMP in first, while we were pursuing the Citadel deal," he says.

Cumulus gave Bain, Blackstone and THL shares in the parent company in exchange for their equity in CMP. The firms, which each held about 15% of Cumulus Media Partners, will hold about 2% of Cumulus Media Inc.

Once the Citadel and CMP deals close, the company plans to refinance what are essentially three balance sheets as one. Carl Salas of Moody's compares the combination to the story of Goldilocks and the three bears. "One is small, one is big, and one is right in the middle," he says. The Cumulus parent owns stations in midsized markets. The Cumulus Media Partners portfolio is in bigger cities. Notes Salas, "Citadel is perfectly in the middle."

While it may have looked like a failure at the time, the collapse of the 2007 Merrill Lynch deal may have been the best thing to happen to Cumulus.

It is difficult to gauge what impact the Merrill deal would have had upon Cumulus without knowing what terms the debt would have carried. The radio business, which was already flagging, got worse after Cumulus and Merrill terminated the agreement. "It most likely would have resulted in a restructuring," Dickey says. "We may have been right next to Citadel in bankruptcy."

Even without the Merrill LBO, Cumulus had to amend the terms of its senior credit facility in June of 2009. At the close of 2009, the covenants of its credit agreements would have limited the company to debt of 8 times Ebitda. By year's end, Cumulus leverage stood at 8.67 times Ebitda.

The new deal lifted debt restrictions for seven quarters, during which time Cumulus paid down more than $106 million in debt.

When covenants resumed after March 2011, they limited Cumulus' debts to 6.5 times Ebitda. When the company issued its first-quarter earnings in May, leverage came to 6.38 times Ebitda. Dickey says that after the company rolls up CMP and Citadel, and refinances its debts, leverage will stand at about 5 times Ebitda.

The overriding question for Clear Channel, Cumulus and every radio station on the dial is whether the stirrings in 2010 and 2011 indicate a lasting improvement or just false hope in a secularly declining business.

Dickey suggests that Pittman, in his new role at Clear Channel, will have the bully pulpit to convince Wall Street that radio should not be grouped with fading Yellow Pages directories and newspapers. "Bob recognizes that and will be very helpful in correcting that view and letting people see how vibrant the industry is," Dickey says.

However, many observers view the numbers so far with trepidation. "Remember these are all comp'd against really rough quarters," says Jefferies' Levine, explaining that the comparisons will become more difficult toward the end of the year when results are gauged against 2010 quarters that benefited from political advertising.

"We still see obstacles to sustained growth," says Altberg of S&P.

After the 2001 recession, he says, radio bounced back about 6% in 2002, much like the 2010 recovery. The numbers then flattened and dipped before the last recession. "The question is, will that pattern repeat itself?" Altberg asks.

The industry cannot yet count on digital revenue propping up the top line. Digital accounted for about 4% of total revenue in 2010. Altberg notes that to compensate for a 1% decline in traditional spot revenue, digital sales would have to increase 23%. "It's not going to make up for declines in traditional revenue," he says.

One of the few purchases that Clear Channel has made in its debt-laden state is the 2011 acquisition of Thumbplay Inc., a music streaming website. The company says Thumbplay will be a catalyst for its iHeartRadio unit, which streams 750 of Clear Channel's stations.

Pittman has touted the company's progress of iHeartRadio. The website draws 30 million unique visitors a month, compared to more than 25 million for Pandora. The cash that Clear Channel's radio business produces, Pittman has argued, gives the company ample resources to develop iHeartRadio.

Radio stations have Facebook and Twitter accounts, white-label clones of Groupon-style promotions and streaming sites. But the industry has not developed a digital model that comes close to supporting the business.

"What have they done? Have they just put their content on a website, where you can stream it from the Web?" Jefferies' Levine asks, referring to radio companies in general. "If that's all they've done, that's well and good. You may get some additional listeners. But that's probably not going to be the winning solution for the industry."

For Clear Channel, the immediate goal is to position the company for 2014 and 2016. "Their MO is to try to survive and kick the can down the road," Moody's Begley says. "Return to shareholders is pretty much nonexistent. The business is still very sound and generates terrific margins. It is not a business that should be highly levered. It's a supercyclical industry."

Meanwhile, six years after he struck the alliance with Bain, Blackstone Group and THL, Dickey's Plan C is getting under way. It might be more appropriately called Plan CC -- after his long-standing goal to build an alternate to Clear Channel.

As the industry's rebound either continues or falters, Clear Channel and Cumulus may finally prove whether there is an architecture that will support large-scale radio LBOs, or whether the industry's cycles are too erratic to support such demanding schedules of maturities and covenants. Stay tuned.