Moody’s Investors Service has issued a new ratings notice for the $21 billion of rated debt at Clear Channel Communications. But the minor change is only temporary – while Moody’s waits to see what happens down the road.
What Moody’s has done is change Clear Channel’s Probability-of-Default rating to Caa3/LD (the LD is for “Limited Default”) from Caa3. That reflects the credit rating agency’s view that the company’s recently completed tender for some of its bonds was effectively a distressed exchange default. “We expect to remove the “/LD” designation shortly. The outlook remains negative,” Moody’s added.
“While this transaction beneficially reduced total debt (the total aggregate principal amount of debt was reduced by approximately $412 million for total consideration of $149 million) and interest expense and improves the company’s debt maturity profile, the reduction in balance sheet cash will adversely impact Clear Channel’s covenant ratio as the covenant is a net secured debt calculation (total secured debt less cash on hand),” said the Moody’s analysis.
“Clear Channel’s ratings and negative outlook continue to reflect Moody’s expectation that the company will likely need to restructure its balance sheet, either due to a violation of its senior secured leverage covenant over the next several quarters, or within the next few years as the company faces material maturities of debt with insufficient liquidity to meet them and to much leverage to attract refinancing capital,” stated Neil Begley, a Moody’s Senior Vice President.
Therefore, Moody’s said, it continues to believe that the company’s capital structure is unsustainable.