Clear Channel Outdoor (CCO) isn’t just boosting its proposed $750 million bond offering a little bit. Moody’s Investors Service has lowered its rating on the issue because it’s now been expanded to $2.5 billion – the entire amount owed to parent Clear Channel Communications (CCU).
Moody’s had originally rated the proposed offering of senior unsecured notes due 2017 by CCO subsidiary Clear Channel Worldwide (CCW) at B1, but with the expansion to $2.5 billion that’s been lowered to B2. Moody’s said the one step downgrade reflects the elimination of the debt cushion at CCO from the inter-company loan from CCU. That loan had been due to mature in August 2010. The proposed offering now includes $2 billion of Series B notes to be sold to institutional investors and $500 million of Series A notes covered by a “due from” note from CCU.
“Under the previously contemplated structure, Clear Channel Outdoor, Inc.’s structurally subordinated inter-company note provided loss absorption cushion to debt issued at CCW,” stated Neil Begley, a Senior Vice President at Moody’s Investors Service.
Moody’s said CCW’s new note issuance is still expected to be guaranteed on a senior unsecured basis by CCO and its subsidiaries.
“The offset of the ‘due from’ CCU balance against the inter-company note is viewed positively as it eliminates the risk in any future CCU default scenario that this receivable would not be collected given its lower priority ranking as compared to CCU’s large secured debt balance,” Begley added..
Despite the revised capital structure, Moody’s does not anticipate any material change to the outdoor company’s credit metrics. The rating outlook remains stable, the ratings agency said.
RBR-TVBR observation: The high yield bond market is not only good, as reported before, but apparently very, very good. Clear Channel management had been rumored at one point to be interested in replacing the entire $2.5 billion of inter-company debt at CC Outdoor with new borrowing, but had eventually scaled that back to $750 million. But if Wall Street’s appetite is that good – go for it!