Radio giant Clear Channel recently announced a plan to knock 2016 maturities from $8.2B to $6.7B – but check that. It has taken the $1.5B in financial instruments and upped the ante to $4B, bringing its 2016 obligation down to $4.2B. Moody’s said the move is ratings-neutral.
The move also extends the time on the back end. The $1.5B loan would have matured in July of 2018. The new improved $4B loan will have an extra six months, until January 2019.
The costs of the move is an increased interest rate, and annual interest expense is expected to increase for the $35M or so under the original plan to an estimated $124M.
Moody’s Scott Van den Bosch explained, “Extending debt maturities at materially higher interest rates may only be exchanging the risk of a default at maturity for a payment default if the economy enters another economic downturn. However, it does provide the company additional time to improve results and look for future opportunities to delever the balance sheet and potentially offset the impact of higher interest expense. It may also provide the company with the opportunity to extend the maturity of debt that is subordinate to the bank debt in the capital structure. Clear Channel’s radio and outdoor business have always been heavily influenced by the economy, but higher interest expense make the company especially sensitive to an economic recession in the future if EBITDA levels decline which has the potential to cause a liquidity event.”
Clear Channel’s Corporate Family Rating remains at Caa2 and its outlook remains stable.