They say all publicity is good publicity, but management at CC Media Holdings, the parent company of Clear Channel Communications, would probably have preferred not to be the subject of a story in Thursday’s New York Times. It suggests that Clear Channel is vying for the title of “biggest loser among media companies in this recession” and may not be able to handle its huge pile of debt.
The NY Times story came on the heels of this week’s firing of an additional 590 staffers to cut costs at Clear Channel Radio. It noted a recent CNBC interview of Scott Sperling, a principal of Thomas H. Lee Partners, one of the two primary private equity owners of CC Media Holdings, in which he denied that the company was on track for “an imminent blowup.” But then the story noted the steep decline in Clear Channel’s revenues and questioned whether it will be able to finish 2009 without being in technical default of its leverage covenant.
While CC Media Holdings has about $23 billion of debt as a result of the buyout loans and assumption of existing debt, the NY Times quoted Neil Begley of Moody’s Investors Service as estimating that the current market value of Clear Channel’s assets is about $12 billion. Moody’s is already on record as stating it expects Clear Channel to default on its debt covenants in 2009.
While Clear Channel has about $1.4 billion in cash on hand, having drawn down 100% of its available credit line, analysts told the Times the company needs to generate about $1.5 billion in cash flow this year to remain in covenant compliance. That won’t be easy unless the economy improves.
RBR/TVBR observation: Banks generally don’t want to own radio stations, so they usually will come to terms with a borrower if at all possible. But the bad blood between CC Media and its bankers, who were sued to force them to fund the private equity buyout, adds a different dynamic to this situation.
As we noted earlier this week, if Bain Capital and TH Lee can’t demonstrate that they know how to run a radio company, “we’ll then find out whether Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Royal Bank of Scotland and Wachovia know anything about how to run a radio company.” Now, that would be interesting.