Moody's offers cautious view of Clear Channel bond sale


Moody’s Investors Service has assigned a Caa1 rating to the proposed sale of $750 million in new 10-year bonds by Clear Channel Communications. That’s a junk-bond rating, of course, but in line with the company’s overall corporate family rating (CFR) of Caa2. For now Moody’s has a “stable” ratings outlook for Clear Channel, but notes that a lot of debt is coming due in a couple of years.

Moody’s noted that all of the proceeds from the $750 million sale of senior secured priority guarantee notes due 2021 will go to refinance existing debt – $250 million to fund the maturity of the company’s pre-LBO 6.25% senior notes coming due this year and the rest to pay down the company’s revolver and term loans. Clear Channel is also getting amendments to its credit facilities to give it greater flexibility.

Looking down the road, though, Moody’s says its Caa2 CFR – eight notches below investment grade – “reflects the unsustainable nature of Clear Channel’s capital structure” with high leverage and big debt maturities in 2014 and 2016. “Moody’s anticipates that cash-on-hand and free cash flow generation will not be adequate to fund the approximate $5 billion of debt maturing through fiscal 2014,” the ratings announcement said.

“Notwithstanding the company’s weak balance sheet which greatly influences the company’s credit ratings, Clear Channel possesses significant scale, geographic diversity and leading market positions in most of the 150 markets in which the company operates. Also, Clear Channel is presently benefiting from a healthy rebound in the economy as evidenced by improving operating performance, modest (but positive) free cash flow generation in 2010, and potential for enhanced liquidity and flexibility afforded to the company through the recently proposed credit facility amendments. Moody’s notes, however, that the company faces higher interest costs from any refinancing or extensions of debt maturities which could materially cannibalize free cash flow,” Moody’s said.

RBR-TVBR observation: Bain Capital and Thomas H. Lee Partners have been putting a lot of effort into reworking the debt structure at Clear Channel (CC Media Holdings) to keep the vulture capital funds at bay and hopefully someday get a payoff from their equity investment in the radio/outdoor company. This 10-year bond sale is just another step in that process, but you’ve gotta hand it to ’em – they’ve made a lot of smart financial moves and now they have the economy working for them instead of against them.