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 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
"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
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.