Moody’s Investor Service says the $100 million stock repurchase plan announced by Clear Channel Communications may have negative credit implications, but for now the company’s ratings remain unaffected.
“In Moody’s view, the repurchase program and its relatively modest size are not by themselves unusual. However, the weakness of CCC [Clear Channel Communications] given its huge debt and leverage burden make any use of cash other than for debt reduction a concern from a credit risk perspective, despite the benefits from the recent advertising rebound,” Moody’s warned, while stating that the announced plan in and of itself would not affect the credit ratings of Clear Channel of its Clear Channel Outdoor subsidiary.
“In our opinion, to make such purchases of stock, management would need to believe that the company and creditors would benefit from such a speculative use of cash,” stated Neil
Begley, a Moody’s Senior Vice President. “This might include purchasing stock in Clear Channel Outdoor or CC Media at prices that it expects to be below either of their intrinsic values and hoping to eventually realize a higher value at a later date,” he added.
Moody’s said it does not believe that there is underlying equity value at CC Media Holdings, the parent company whose stock trades on the “pink sheets” as CCMO. “In Moody’s estimation, debt currently exceeds and will likely continue to exceed the value of CCC’s assets until a restructuring occurs that reduces debt considerably. Therefore, repurchase of those shares would be highly imprudent in Moody’s view,” the ratings agency said.
“With regard to purchasing shares in Clear Channel Outdoor, the valuations appear to be below some of the company’s pure play peers/competitors, but this discount may be reasonable given the overlying concern regarding its highly leveraged parent and the ongoing cash flowing to CCC in accordance with the Corporate Services Agreement between the two entities. Stock purchases, if any, are expected to be funded from available cash on hand, and would also reduce the company’s liquidity slightly,” Moody’s concluded.