Yes, revenues fell again in Q4 at Clear Channel Radio, but didn’t fall as much as Wall Street analysts had expected. With Clear Channel Outdoor still posting revenue growth, there’s plenty of cash flow for debt coverage and a growing expectation that the private equity buyout will, indeed, close next month.
“Radio’s mild decline should provide some investor relief,” said Bear Stearns analyst Victor Miller in his report to clients on the CCU results. He noted management’s statement that Clear Channel Radio is pacing down 4% for Q1 and, at this early date, flat for 2008 as a whole.
The focus on Wall Street is not so much on the long-term prospects for Clear Channel’s businesses, but whether they are doing well enough to get financing for the pending buyout. Miller noted the statement from the company’s earnings release: “The Company anticipates closing on or before March 31, 2008.”
Hopes for the buyout to get to closing next month were raised by Q1 guidance that SMH Capital analyst David W. Miller said was better than even the most optimistic expectation – that radio was only pacing down 4% this quarter. “With the current arb spread now at 23%, we continue to recommend CCU shares for three reasons: 1) Bain Capital does not want to pay sky-high break-up fees; 2) CCU’s austerity initiative was likely influenced by the sponsors themselves; and 3) CCU is still tremendously free cash flow-generative, and should produce enough free cash in order to service ‘consensus’ terms,” Miller wrote. He calculates that a private Clear Channel will need about 1.3 billion in annual FCF to service a total of 22.8 billion in debt.
Of course, that debt load can be reduced by selling assets. Bear Stearns’ Miller notes that Clear Channel still has a 1.4 billion capital loss carryforward to use over the next three years, so he says asset sales are key.
Was there anything not to like in Clear Channel’s Q4 results? While Clear Channel Outdoor’s performance was much better than radio, Lehman Brothers analyst Anthony DiClemente is concerned that outdoor growth is slowing in 2008. Q1 outdoor pacings were put at 4.5% growth, while he had been expecting 6.6%.