CCM+E sitting on monetary fault line


Clear ChannelThe acquisition of Clear Channel by Bain Capital Partners and Thomas H. Lee Partners took place on the wrong side of the financial crisis, turning the management of the balance sheet into a juggling act. The company is paying now to move some big obligations further into the future.

According to Bloomberg, the company’s proposal to move the due date on $1.8B in 2016 maturities three to five years into the future will carry a heavy annual price tag.

It comes at a point in time where the company is experiencing negative cash flow, according to Bloomberg’s calculations. It said that results going back a year from June 2013 spell a loss of almost 570M in free cash flow, the first such red-ink burden suffered by the company since 2009.

Fitch Ratings believers that the latest maneuver could add as much as $55M a year to CCME’s interest expense.

Moody’s already had the company rated at the Caa1 level last May. To put that in perspective, companies in the A range are good, safe investments, B range companies are stable but carry some risk, and C range are shaky. Caa is at the top of the C range. Bloomberg notes that the latest Moody’s rating is down to Caa2.

Clear Channel is willing to double interest rates to buy time. A Moody’s analyst, Scott Van den Bosch, noted that it is never a good idea to refi at a higher rate, but acknowledged that the moves will give the company additional time to get their books in order.

However, a general economic downturn could be disastrous. In such a scenario, advertising is one of the first things many businesses cut back on, making broadcasters particularly susceptible to rough patches.

Additionally, Van den Bosch noted that Clear Channel may find itself trying to sell assets, which combined with other strategies to lower the company’s very high debt level could start improving the balance of the company’s ledgers. Bloomberg calculates CCME’s current leverage level at about 11.7x.