Not a single Wall Street equity analyst that we know of follows CC Media Holdings and its thinly traded over-the-counter stock. However, the parent of Clear Channel Communications does have public debt – a lot of it – so Wells Fargo Securities high yield bond analysts Bishop Cheen and Davis Hebert are on the case.
In a recent analysis piece, they noted that the issuance of $2.5 billion in new senior notes by Clear Channel Outdoor (CCO) in December allowed it to redeem the entire intercompany note it owed to Clear Channel Communications (CCU – the old symbol from NYSE days). CC Media (CCMO) then used $2 billion of that to repay some of its secured debt.
“Via the $2 billion pay down of secured debt, CCMO’s covenant ratio improved from 8.8x before the December bond offering and secured debt pay down to 7.4x against a 9.5x covenant ratio. In our mode, CCMO’s covenant leverage ratio will improve slightly this year to 7.2x—well under the maximum ratio. The covenant is capped at 9.5x through Q1 2013, stepping down to 9.25x through Q3 2013, then eventually to 8.75x at year-end 2014. Before this deal was announced, we estimated that CCU would clear the 9.5x covenant cap at year-end 2009 with 9.2x covenant leverage, but we did not think CCMO would have been able to comply with the covenant in 2010,” Cheen and Hebert wrote.
Clear Channel management and their private equity backers, Bain Capital and Thomas H. Lee Partners, continue to play for time after completing the largest media leveraged buyout ever just as the industry was slipping into a severe ad recession. As business improves, look for CCMO to use its cash flow to pay down some of the $21.5 billion debt load and propose some debt exchanges as well to push out maturities.
“Against all odds, CCMO has managed to redo its balance sheet and buy time. Clearly, a resurging bond market from its distressed nadir one year ago helped CCMO monetize its CCO credit after failing to two prior attempts last year. For faithful holders of CCMO’s debt complex, patience paid off handsomely with some levels literally tripling in price during the past 12 months. Hindsight is bliss, but, currently, we think more upside ahead is already priced into CCMO’s various debt issues due to an inherent set of negative and uncertain factors — earnings, sustainability of growth, structural complexity, and a relative lack of transparency compared to other publicly traded media companies. We reiterate our market perform recommendation on 2010 and 2011 maturities, and underperform on 2012-plus maturities,” Cheen and Hebert told clients.