TEXT - Fitch rates Clear Channel Communications notes

Fri Feb 22, 2013 2:00pm EST

Feb 22 - Fitch Ratings has assigned a 'CCC/RR4' rating to Channel
Communications, Inc. (Clear Channel) $575 million senior secured priority
guarantee note (PGN) due 2021. The notes will rank pari passu with the existing
secured credit facilities and the existing secured PGN. Fitch currently has a
'CCC' Issuer Default Rating (IDR) on Clear Channel. A full list of ratings 
follows at the end of this release.

Proceeds of the issuance, along with proceeds from borrowings under Clear 
Channel's receivable credit facility and cash on hand, will be used to repay the
$847 million outstanding under the term loan A due in 2014. Fitch views the 
transaction favorably as a meaningful portion of the company's 2014 maturities 
are extended (remaining 2014 maturities are Clear Channel's $461 million of 
legacy notes). One negative of the transaction is the higher coupon on the new 
PGNs relative to the term loan, increasing annual interest expense by 
approximately $40 million.

The bank debt and PGNs are secured by the capital stock of Clear Channel, Clear 
Channel's non-broadcasting assets (non-principal property), and a second 
priority lien on the broadcasting receivables that securitize the ABL facility. 

The bank debt and secured notes are guaranteed on a senior basis by Clear 
Channel Capital I, Inc. (holding company of Clear Channel), and by Clear 
Channel's wholly owned domestic subsidiaries. There is no guarantee from CCOH or
its subsidiaries. The leveraged buyout (LBO) notes benefit from a guarantee from
the same entities, although it is contractually subordinated to the secured debt
guarantees. The legacy notes are not guaranteed.

Clear Channel's Recovery Ratings reflect Fitch's expectation that the enterprise
value of the company will be maximized in a restructuring scenario (going 
concern), rather than a liquidation. Fitch employs a 6x distressed enterprise 
value multiple reflecting the value of the company's radio broadcasting licenses
in top U.S. markets. Fitch applies a 20% discount to Radio EBITDA. Fitch assumes
that Clear Channel has maximized the debt-funded dividends from CCOH and used 
the proceeds to repay bank debt. Additionally, Fitch assumes that Clear Channel 
would receive 89% of the value of a sale of CCOH after the CCOH creditors had 
been repaid. Fitch estimates the adjusted distressed enterprise valuation in 
restructuring to be approximately $7 billion. 

The 'CCC' rating for the bank debt and secured notes reflects Fitch's belief 
that although the current recovery expectations are near the bottom of the 'RR3'
(51%-70%) range, an 'RR4' (31%-50%) rating is appropriate given the complexity 
and uncertainty of the situation, and the proportion of secured debt in the 
capital structure. Fitch expects no recovery for the senior unsecured legacy 
notes and LBO notes due to their position below the banks in the capital 
structure, and they are assigned 'RR6'. However, Fitch rates the LBO notes 'CC' 
and the legacy notes 'C', given the formers' receipt of a subordinated guarantee
and the latters' lack thereof. 

CCOH's Recovery Ratings also reflect Fitch's expectation that enterprise value 
would be maximized as a going concern. Fitch stresses outdoor EBITDA by 15%, to 
approximately the level where the company could not cover its fixed charges, and
applies a 7x valuation multiple. Fitch estimates the enterprise value would be 
$3.9 billion. This indicates 100% recovery for the unsecured notes. However, 
Fitch notches the debt up only two notches from the IDR given the unsecured 
nature of the debt. In Fitch's analysis, the subordinated notes recover 36%, 
indicating 'RR4' and no notching from the IDR. There is little flexibility 
within the 'RR3' rating category in Fitch's view, and incremental debt could 
result in a downgrade of these notes.

At Dec. 31, 2012, Clear Channel had $663 million of cash, excluding $562 million
of cash held at CCOH. There is $729 million of CCOH funds swept to Clear Channel
for cash management purposes. Clear Channel can access these funds and use them 
at its discretion, although they are due to CCOH on demand.

 

Backup liquidity consists of an undrawn ABL facility maturing December 2017, 
subject to springing maturities. The ABL facility maturity date would be October
2015 if more than $500.0 million is outstanding under the term loan credit 
facilities;  May 2016 if more than $500.0 million in aggregate is outstanding 
under the 10.75% senior cash pay notes due 2016 and 11.00%/11.75% senior toggle 
notes due 2016; and in the event that any of the afore mentioned debt is amended
or refinanced to a maturity date that is before December 2017 and an aggregate 
amount of $500 million is outstanding, the maturity of the ABL facility will be 
one day prior to the maturity date of such debt. The ABL facility is subject to 
an undisclosed borrowing base; $321 million outstanding at first quarter 2011, 
the last reported date before the facility was repaid. 

FCF is limited and will decrease to approximately $100 million given higher 
interest expense. Substantially all FCF comes from CCOH.

Fitch's ratings concerns center on the company's highly leveraged capital 
structure, with significant maturities in 2016 (approximately $10 billion); the 
considerable and growing interest burden that pressures FCF; technological 
threats and secular pressures in radio broadcasting; and the company's exposure 
to cyclical advertising revenue. The ratings are supported by the company's 
leading position in both the outdoor and radio industries, as well as the 
positive fundamentals and digital opportunities in the outdoor advertising 
space.

Fitch estimates that total leverage was 11.4x at Dec. 31, 2012, with secured 
leverage of 7.1x. Fitch does not expect a material amount of total debt 
reduction over the next several years, given minimal consolidated FCF. Instead, 
Fitch expects the company to continue to focus on chipping away at its term 
loans via issuance at Clear Channel and CCOH. 

Pro forma for the new PGN issuance consolidated debt is $21.1 billion. Debt held
at Clear Channel was $16.2 billion and consisted primarily of:

--$8.2 billion secured term loans (B and C) maturing January 2016;
--$4.3 billion secured PGNs, maturing 2019-2021;
--$272 million ABL facility;
--$796 million senior unsecured 10.75% cash pay notes, maturing August 2016;
--$830 million senior unsecured 11%/11.75% PIK toggle notes, maturing August 
2016; 
--$1.75 billion senior unsecured legacy notes, with maturities of 2014-2027.

Sensitivities:

Positive: Positive rating actions could result from a material reduction in 
secured leverage, as well as agreements with the term loan holders to extend a 
substantially larger portion of its term loan maturities long enough that Fitch 
believes the company will be better able to address them via a combination of 
cash payments, public debt, and refinancing of bank loans.

Negative: A downgrade could result from prolonged consolidated cash burn, which 
would reduce Clear Channel's ability to fund near-term maturities. Additionally,
cyclical or secular pressures on operating results that further weaken credit 
metrics, reducing the potential for refinancing/extension, could result in 
negative rating pressure. Lastly, indications that a DDE is probable in the near
term would also drive a downgrade.

Fitch currently rates Clear Channel and its subsidiary as follows:

Clear Channel
--Long-term IDR 'CCC';
--Senior secured term loans and senior secured revolving credit facility (RCF) 
'CCC/RR4';
--Senior secured priority guarantee notes 'CCC/RR4';
--Senior unsecured LBO notes 'CC/RR6';
--Senior unsecured legacy notes 'C/RR6'.

Clear Channel Worldwide Holdings, Inc. 
--Long-term IDR at 'B';
--Senior unsecured notes 'BB-/RR2';
--Senior subordinated notes 'B/RR4'.

The Rating Outlook is Stable.
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