NEW YORK, Dec 22 (Reuters) - Clear Channel Communications recent refinancing of an intercompany loan has removed concerns about its short-term liquidity, though the company will remain challenged to meet its longer-term debt maturities.
Liquidity enhancements from the debt sale, and improving asset coverage for its bank loans, however, may make its lenders more amenable to restructuring its still high debt load, analysts said.
Clear Channel said on Monday it sold $2.5 billion in new bonds from its Clear Channel Outdoorunit, up from an originally planned $750 million, and would use proceeds to repay around $2 billion Clear Channel Outdoor owed its parent.
Concerns that the company could breach covenants in the loan and struggle to pay near-term debt maturities had risen ahead of the sale.
A breach of its covenants would have left Clear Channel at the mercy of its lenders, who could have tried to push it into bankruptcy as a means of taking control of the company.
Now, "it appears that the company will avoid a year-end leverage covenant violation," Shelly Lombard, analyst at Gimme Credit said in a report. "It has enough liquidity to last another two years and $2.5 billion from a...debt offering by its subsidiary will boost liquidity even more."
The cost to insure Clear Channel's debt in the credit default swap market fell to around 1200 basis points on a spread basis, or $1.2 million per year to insure $10 million in debt for five years, from more than 2000 basis points last month, according to Markit.
Clear Channel is struggling with its debt after being taken private last July in a $17.9 billion takeover by private equity funds Thomas H. Lee Partners [THL.UL] and Bain Capital.
The company had around $20 billion in debt as of September 30, including almost $16 billion in bank debt that is secured against the company's assets, most of which matures in 2015.
Around $2 billion of bond and loan payments are also due in the next three years.
The loan repayment has significantly improved the company's near-term outlook, and combined with an increasing enterprise value, the company's assets now easily cover its bank loans, CreditSights analyst Jake Newman said in a report.
"Stronger asset coverage makes it more likely that bank loan holders would become constructive on eventual refinancing of the company's massive bank debt," he said.
Newman changed his recommendation on the company's credit to overweight, from underweight, and said its credit default swap spreads are attractive on a short-term basis.
Gimme Credit's Lombard also rates the company's debt outperform on momentum from its improved short-term liquidity, but warned that several longer-term problems remain.
"Even with a massive pay down, we have little hope that Clear Channel Communications can grow into its capital structure and doubt the value of the bonds," she said.
Declining advertising revenues at the company's radio operations are also likely to continue to pressure its earnings.
"Radio stations will probably never command the amount of advertising they did in the past," and the company's earnings aren't enough to cover its interest expense and capital expenditures, she said.
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