Moody's Expresses Concern, Issuing A 'CAA1' Rating To Clear Channel's Recent Offering
May 13, 2013 at 3:59 AM (PT)
MOODY'S INVESTORS SERVICE has assigned a "Caa1" rating to CLEAR CHANNEL COMMUNICATIONS' proposed $1.5 billion term loan D. CLEAR CHANNEL's "Corporate Family Rating" is unchanged at "Caa2."
MOODY'S notes, "The company has announced an amendment to its current credit facilities (NET NEWS 5/9) to exchange $1.5 billion of its $8.2 billion in term loan B & C's which mature in JANUARY 2016, into a new term loan D that matures two and half years later in JULY 2018. The security and guarantee package is expected to be identical to the existing term loans. While the final price has not been determined as of this press release, the term loan D would pay L+600 instead of the L+365 on the existing B &C tranche. There would be no required amortization and in the case of any mandatory prepayments to the bank loans, any paydowns would be applied first to the 2016 bank facilities. The maintenance covenant of the existing terms loans will be extended out to the term loan D's maturity date where it will be set at 8.75x."
MOODY'S explains, "The exchange offer follows the company's issuance of PGN notes and a draw down on its ABL facility in FEBRUARY 2013 to repay its TLA facility that was scheduled to mature in 2014. The transaction would reduce the amount of term loans maturing in JANUARY 2016 from $8.2 billion to $6.7 billion. $1.6 billion of cash pay and toggle notes mature in AUGUST 2016 and an additional $250 million of legacy notes mature in DECEMBER 2016. While the transaction extends CLEAR CHANNEL's debt maturity profile, it is expected to increase interest expenses by about $35 million annually, although final pricing has not yet been determined."
The rating was set because, "CLEAR CHANNEL's Caa2 (CFR) reflect the very high leverage levels of 11.4x on a consolidated basis (excluding MOODY's standard lease adjustments) and $8.6 billion of debt due in 2016 (pro-forma for the proposed exchange offer). The ratings also include weak free cash flow and interest coverage of 1.4x which will be further pressured by higher interest rates from future refinancings or extensions of its debt maturities. While the company has made progress extending its debt maturity profile, more progress will be needed and the anticipated increase in interest rates could be material. Even if CLEAR CHANNEL is able to refinance its 2016 maturities, the company will remain vulnerable to a slowdown in the economy given the heightened sensitivity that its radio and outdoor businesses have to economic conditions. The combination of higher interest rates from a refinancing and lower EBITDA in the event of a future economic downturn could materially impair its interest coverage and liquidity position. In addition, there are secular pressures on its terrestrial radio business that could weigh on results as competition for advertising dollars and listeners are expected to increase going forward. Also incorporated in the rating, is the expectation that leverage levels will remain high over the rating horizon compared to the underlying asset value of the firm."
Read MOODY'S full report here.