The latest story in the Big Apple tabloid claims that Clear Channel Communications has become so desperate to restructure its debt that it’s even gone to the bankers it once sued seeking help. The private equity funds who now own most of Clear Channel, Thomas H. Lee Partners and Bain Capital, deny the claim. The New York Post story cited an unidentified source as saying Clear Channel may default on its massive debt load by the end of this year or early next year.
“The New York Post story about Clear Channel today is dead wrong, and we told them so. It’s a blatant misrepresentation of events to report that THL and Bain Capital have reached out to the banks for financing assistance on Clear Channel,” said a spokesperson for the private equity sponsors in a statement to RBR-TVBR.
To refresh your memory, Clear Channel sued six big banks for $26 billion in March 2008 when they balked at meeting their loan commitments for the company’s private equity buyout. After Clear Channel won some preliminary rounds in court, the banks relented and the deal went to closing in July 2008, with Bain Capital and Thomas H. Lee Partners as the primary owners.
What followed was an unprecedented collapse of the US advertising market. All of the financial projections upon which Bain and TH Lee had relied for the leveraged buyout evaporated. Clear Channel Television was sold to cut debt, but efforts to sell a large group of medium and small market radio stations fell short of expectations as valuations plunged and many were pulled back off the market. In recent months Bain and TH Lee have sought to refinance some of the debt at either Clear Channel Communications or its majority-owned Clear Channel Outdoor subsidiary, but thus far have been unable to
RBR-TVBR observation: As we’ve said before, this talk of an imminent default seems premature. The folks who control Clear Channel are not yet out of financial levers to pull.
CC Media Holdings, the parent of Clear Channel Communications, will report its Q3 results in a few weeks. We’ll then have an up-to-date picture of just where the company stands regarding its leverage covenants.
Even a slight improvement in ad sales should boost cash flow in coming quarters and pull the company back from tripping its leverage covenants. It might be close, but the people at Bain and TH Lee know that the vulture funds holding most of Clear Channel’s debt aren’t going to offer any help, so they’ll pull out all of the stops to avoid a default.
So, did they actually ask the same banks who lost billions on their loans to lend again? With the chance of success being somewhere in the range of slim to none, we doubt that anyone made a serious inquiry.