ETF News

US CREDIT-Clear Channel liquidity bouyed, challenges remain

 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 Outdoor CCO.N unit, 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
 "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.