CC Media Holdings, the parent company of Clear Channel Communications, is doing some more refinancing of its substantial debt load. In this case the new debt is being issued by Clear Channel Outdoor, but the effect will be to help the parent company with its balance sheet.
Clear Channel Outdoor, which has its own NYSE stock (CCO), plans to sell $250 million of Series A Senior Subordinated Notes due 2020 and $1 billion of Series B Senior Subordinated Notes due 2020 in a private placement to institutional investors.
But CCO won’t keep the proceeds. It will pay it all out as a special dividend to its shareholders. So 11% will go to the public holders of the NYSE-traded stock and 89% will go to the majority owner, Clear Channel Communications (still called CCU by many aft its former NYSE symbol), which will use the cash to pay down its debt.
Moody’s Investors Service explained the financial maneuver in its rating statement:
“The proceeds from the proposed senior subordinated issue are expected to be used to pay a dividend to existing shareholders with 89% going to Clear Channel Communications and the remaining 11% being paid to public shareholders. The proceeds paid to CCU are anticipated to be used to help address its 2014 maturities and permanently repay part of CCU’s revolving credit facility. This will reduce CCO’s $145 million sublimit availability to the revolver on a pro-rata basis. The additional debt will increase interest expense and reduce free cash flow at CCO. The reduction in cash flow will likely reduce the amount of cash that is upstreamed to CCU going forward as part of its revolving promissory note ($272 million was upstreamed in 2011). The current balance due from CCU to CCO was $656 million as of yearend 2011 and is an unsecured subordinated claim to CCU’s existing capital structure. Total Leverage will increase from 4.9x as of FY end 2011 to 5.7x pro-forma for the transaction including Moody’s standard adjustment for lease expenses.”
Moody’s assigned a B3 rating to the $1.25 billion proposed senior subordinated note issue. The B2 Corporate Family Rating (CFR) and B1 Probability-of-Default Rating (PDR) were affirmed. Additionally, Moody’s upgraded the rating to the outdoor company’s existing $2.5 billion Senior Unsecured Notes due 2017 to B1 from B2 to reflect the increased amount of subordinated debt in the capital structure. The speculative grade liquidity rating remains SGL-2.
Issuer – Clear Channel Worldwide Holdings, Inc.
Corporate Family Rating — B2 affirmed
Probability of Default Rating — B1 affirmed
Senior Unsecured Notes due 2017 — upgraded to B1 from B2 (LGD 4, 52%)
Proposed Senior Subordinated Unsecured Notes due 2022 –assigned B3 (LGD 6, 94%)
Speculative grade liquidity rating — remains SGL — 2
Outlook — remains Stable
Click here for RBR-TVBR’s recent story on when Clear Channel’s more than $20 billion of debt comes due. A small piece, $250 million, comes due next month.
RBR-TVBR observation: Clear Channel Outdoor has to treat all of its common shareholders equally, so the public shareholders get a nice cash payment to enable CCO to pass an even bigger pile of cash to its parent company.