Newport TV may pay 16 pct yield to sell notes -IFR

NEW YORK, May 2 (Reuters) - Newport Television LLC may pay yields of up to 16 percent on Friday to sell debt for its acquisition of Clear Channel Communications' television stations, according to International Financing Review.

A 16 percent yield would likely be the highest paid in the U.S. junk bond market this year, according to high-yield research firm KDP Investment Advisors.

Newport is being forced to pay up because of the low ratings on the debt, the first U.S. junk bond sale since December to carry ratings in the "triple-C" range from two major rating agencies, according to KDP.

"That's the only way it was going to get done," said Justin Monteith, market analyst for KDP. "If, as we all expect, there's going to be an uptick in bankruptcies, the bulk of that is going to come from the 'triple-Cs,'" he said.

The hefty yields on Newport's debt portend badly for any unsold leveraged buyout debt still on banks' books. A 16 percent yield would equate to a discounted price of about 86 cents on the dollar, meaning banks could have to offer similar discounts to sell comparably rated bonds.

Newport is selling about $200 million of pay-in-kind toggle notes with an expected yield of 15.75 to 16 percent, according to IFR, a Thomson Reuters publication. Pay-in-kind toggle notes give the issuer the right to forego cash interest payments and give noteholders new debt instead.

Newport is also selling about $194.5 million senior discount notes due in 2018. Price guidance on that portion was not available.

Wachovia, Goldman Sachs and UBS are joint book-running managers on the bond sale.

The notes are rated "Caa1" by Moody's Investors Service and "CCC-plus" by Standard & Poor's, both seven steps below investment grade.

Similarly rated PIK toggle notes were offering yields of about 10 to 12 percent last year, but investors have shied away from low-rated toggle debt since a credit crisis erupted last summer.

The Newport TV deal is separate from a $20 billion leveraged buyout of Clear Channel Communications (CCU.N), agreed to last year but stalled amid legal wrangling over funding. Banks that agreed to the financing balked after the debt markets deteriorated and have been sued by the private equity buyers in the deal, Thomas H. Lee Partners and Bain Capital Partners LLC.

S&P has said if the Clear Channel buyout closes, it expects to rate the company's senior unsecured debt "CCC-plus." (Reporting by Dena Aubin; Editing by James Dalgleish)