Clear Channel may struggle with $10b maturity wall in 2016
NEW YORK, Dec 3 (IFR) - Clear Channel Communications (CCU) is facing a stiff challenge in managing the more than USD10 billion of debt that will come due in 2016 without being forced into a restructuring of its balance sheet, Moody's Investors Service said on Monday.
The media and entertainment company, rated Caa2 with a stable outlook, has made progress in dealing with near-term maturities, but by 2016 it will have debt levels that are greater than its expected asset value, the agency said.
"The possibility of a restructuring or a distressed exchange remains high," team of Moody's analysts headed by Scott Van den Bosch said in a report.
"Efforts to avoid a restructuring and refinance or extend its debt load will likely depend on the receptivity of the financial markets and moderate underlying interest rates."
Clear Channel has taken a series of steps to reduce debt and move out maturities in 2012. Its 89%-owned unit Clear Channel Outdoor Holdings (CCO), an outdoor display company and much healthier credit, issued USD2.2bn of new subordinated notes to fund a USD2.2bn dividend to shareholders in March.
Clear Channel Communications received more than USD1.9bn of cash in the dividend, and used it to permanently pay down its revolver and eliminate debt that would otherwise have come due in 2014.
In October, the company conducted an exchange of USD2bn of bank debt due 2014 and 2016 for 9% Priority Guarantor Notes that mature in 2019 and repaid a 2014 term loan early.
In November, CCO issued USD2.725bn of senior notes that mature in 2022 to tender for USD2.5bn of senior notes and pay premiums and fees.
That helped it reduce its interest costs and gave it greater flexibility in funding future dividends up to CCU.
CCU's coming maturity wall comprises USD312m of debt due in 2013, USD1.3bn due in 2014 and USD250m due in 2015, all of which Moody's expects it to meet.
The problem will arise in January, 2016, when USD8.2bn of bank debt comes due, followed by USD1.9bn of notes later that year.
"If CCU is to have a realistic chance of refinancing USD10.1 billion in debt in 2016, its operating performance will need to improve well above current levels," said Van den Bosch.
Moody's reviewed the situation under three different scenarios and concluded that only its upside scenario will place the company in a position to refinance the debt.
That scenario assumes revenue growth of 1% in 2012, followed by 2% in 2013, 4% in 2014 and 4% in 2015.
That would help reduce debt to EBITDA and bring down debt leverage to a level at which equity would be about breakeven and the company could generate USD250-300m a year.
"This scenario could position the company to refinance or extend its 2016 maturities and allows for other opportunities to delever the balance sheet," said Moody's.
One other challenge highlighted in the report is a change in the holders of the company's bank debt. These are less likely to be the CLOs or relationship banks that used to dominate the market.
CCU's debt structure was sold after the economic downturn and now comprises more distressed or total return investors than previously, some of which may be more willing to allow the company file for bankruptcy to force a restructuring.
"We acknowledge that Private Equity sponsors Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. have sizeable influence in the loan market with traditional investors, but we believe that influence will not be as strong with many of the distressed investors that own the bank debt," said the report.
"As a result, refinancing or amending and extending its bank debt might be more difficult and lead to higher interest rates than would normally be the case.