Clear Channel Outdoor (CCO) doesn’t normally pay a dividend to its shareholders, but the one-time special dividend it’s preparing to pay as part of a deal to boost the balance sheet of its majority shareholder, Clear Channel Communications, is going to be substantial. Wells Fargo Securities analyst Marci Ryvicker has been punching her calculator and estimates the payment to the public shareholders of CCO at around $3.50 per share.
That’s a huge dividend when you figure that CCO closed Monday (2/27) at $13.23. But the new debt of $1.25 billion will cut into future profits, so the stock price actually slipped in Tuesday’s trading.
“CCO is taking on $1.25B of incremental debt through its wholly-owned subsidiary, Clear Channel Worldwide Holdings, of which the proceeds will go towards paying a special dividend to all holders of its Class A and Class B common stock. We believe that the crux of this transaction is to provide parent company CCMO with incremental liquidity to repay its upcoming maturities,” said Ryvicker in a note to clients. “Bottom line: We see two positives: 1) CCO shareholders are set to receive a special dividend of roughly $3.50 per share; and 2) this helps to remove a major overhang at the parent company. We reiterate our Outperform rating.”
Here is how the analyst comes up with the $3.50 estimate: “CCO intends to use the $1.25B (net of certain fees) to pay a special dividend to its shareholders – both Class A and Class B common stock. Using 356.5MM shares outstanding as of 12/31, this $1.25B equates to $3.51/share of a special dividend, which represents a 26.5% yield on today’s closing price. Timing around this dividend payment (i.e. ex-dividend, declaration date, etc.) has not been announced at this time,” Ryvicker said of her math calculations.
“We performed a quick and dirty analysis on CCO’s financials post these transactions,” she added. “At this point, all we know is that Clear Channel Worldwide Holdings intends to raise $1.25B of debt via a private offering- comprised of a $250MM Sr. A Sub note due 2020 and a $1B Sr. B Sub note also due 2020. We do not know the pricing of these instruments nor the timing of when they will be complete. However, we did some quick and dirty math assuming a 3/31 close (end of Q1) and pricing of roughly 7.25%. Our conclusion: CCO will be levered at 4.9x gross debt to trailing EBITDA and 3.9x net debt to EBITDA at the end of 2012 — CCO does not have a maintenance covenant. Although we are not updating our model at this time, we believe that this transaction would have a $0.13 dilutive impact on our 2012 EPS estimate,” the analyst wrote of the transactions.
RBR-TVBR observation: Officially Ryvicker only covers Clear Channel Outdoor, not the ultimate parent company, CC Media Holdings, which trades on the pink sheets. So while CCO shareholders will receive $137 million (less fees) in special dividend payments, what’s driving this bond sale is being able to transfer $1.11 billion (less fees) to Clear Channel Communications and help CC Media Holdings with its upcoming debt maturities.