Moody’s downgrades Clear Channel’s debt

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That shouldn’t surprise anyone, since the company is now carrying a much larger debt load after the private equity buyout. This finally lets Moody’s Investors Service wrap-up a rating review it began October 26, 2006, when the board of directors first announced that it was investigating strategic alternatives for the company.


“Clear Channel’s B2 Corporate Family Rating reflects the company’s high debt-to-EBITDA leverage (8.2x pro forma for the trailing twelve months ended March 31, 2008 and incorporating Moody’s standard adjustments) and the substantial interest burden resulting from the $24.5 billion leveraged buyout of the company by private equity sponsors. Moreover, the rating incorporates the company’s very modest free cash flow-to-debt metric pro-forma for the completion of the buyout. Somewhat mitigating these high financial risks, however, are the dominant scale of the company, its strong and leading market position in the radio and outdoor advertising businesses within the U.S., good operating margins and substantial geographic diversity in its domestic and international businesses. Additionally, Moody’s believes that the financing structure — including the option to PIK interest on the $1.33 billion senior unsecured toggle notes, a $2 billion revolving credit facility which is expected to remain largely undrawn, $1.25 billion of committed delayed draw term loan facilities available to support the 2009 bond maturity and the 7.65% notes due 2010, and minimal required term loan amortization until 2010 — offers some noteworthy flexibility to manage cash flows should earnings not meet expectations,” said Moody’s VP and Sr. Analyst Shilpa Parandekar

“The B2 rating also incorporates the weak prospects for the radio industry, which Moody’s believes is mature, faces strategic threats from alternative media and is under secular and cyclical pressures. The outdoor advertising sector has had favorable growth trends and is relatively more resilient but not completely immune to the impact of the current economic environment. Notably, neither the ratings nor the rating outlook incorporate the potential for a precipitous fall-off in advertising and the company’s revenue base stemming from a severe economic downturn.

Moody’s expects Clear Channel will generate positive (albeit modest) free cash flow (assuming cash payment of interest on the PIK toggle notes) over the intermediate term and utilize it to moderately reduce debt. Moody’s also expects the company to use proceeds from asset sales to pay down debt.

The Caa1 rating of Clear Channel’s legacy senior notes that remain outstanding reflects their subordination to the material amount of the company’s new senior secured credit facilities and the new senior notes as the collateral package will be structured so as to not trigger the equal and ratable clause under the indentures governing the existing senior notes,” the analyst said.

Here are the rating actions taken by Moody’s:

Issuer: Clear Channel Communications, Inc.

Corporate Family Rating — Assigned B2

Probability of Default Rating — Assigned B2

$2.0 Billion 6-year Senior Secured Revolving Facility — Assigned B1 (LGD 3, 33%)

$1.115 Billion 6-year Senior Secured Tranche A Term Loan Facility — Assigned B1 (LGD 3, 33%)

$10.7 Billion 7.5-year Senior Secured Tranche B Term Loan Facility — Assigned B1 (LGD 3, 33%)

$705.638 Million 7.5-year Senior Secured Tranche C Term Loan Facility — Assigned B1 (LGD 3, 33%)

$750 Million 7.5-year Senior Secured Delayed Draw Term Loan 1 Facility — Assigned B1 (LGD 3, 33%)

$500 Million 7.5-year Senior Secured Delayed Draw Term Loan 2 Facility — Assigned B1 (LGD 3, 33%)

$980 Million Senior Cash Pay Notes due 2016 — Assigned Caa1 (LGD 5, 79%)

$1.330 Billion Senior Toggle Notes due 2016 — Assigned Caa1 (LGD 5, 79%)

Existing Senior Unsecured Bonds — Downgraded to Caa1 (LGD 6, 91%) from
Baa3

Multiple Seniority Shelf — Rating Withdrawn

Outlook — To Stable from Ratings Under Review

Speculative Grade Liquidity Rating — Affirmed SGL2

Issuer: Chancellor Media Corporation of Los Angeles

Senior Unsecured — Rating Withdrawn

Issuer: CCCI Capital Trust I

Preferred Stock Shelf — Rating Withdrawn

Issuer: CCCI Capital Trust II

Preferred Stock Shelf — Rating Withdrawn

Issuer: CCCI Capital Trust III

Preferred Stock Shelf — Rating Withdrawn