NY Times: CC Faces Crisis In Cash Flow
April 30, 2009 at 5:24 AM (PT)
CLEAR CHANNEL, last year became the biggest leveraged buyout ever in the media business, after it was taken private by THOMAS H. LEE PARTNERS and BAIN CAPITAL. THE NEW YORK TIMES reports that "now its revenues are plunging and so is its cash flow, making it harder to meet the payments on the billions in debt accumulated in the process of buying out its public investors. If it violates some of its loan agreements, those interest payments rise sharply.
"THOMAS H. LEE PARTNERS Pres. SCOTT SPERLING offered reassuring words about the company’s future in an interview on CNBC in mid-APRIL.
"We do not have any expectation of an imminent blowup," he said, adding that the company still had 'a lot of levers it can pull to continue to generate reasonable cash flow.' "But days later, CLEAR CHANNEL announced that revenue plummeted 23% in the first quarter and cash flow fell by 47%.
"BISHOP CHEEN, who follows corporate bonds for WACHOVIA, wrote recently that CLEAR CHANNEL was on track to become the biggest default among media companies and therefore the biggest workout ever in the industry.
"Before the 2008 purchase closed, there was a battle between the banks and private equity funds, who went to court to force the banks to complete the deal," said NEIL BEGLEY, a MOODY’s debt analyst. "While the equity holders would prefer an out-of-court restructuring, in this case they may not be able to come to terms with the banks."
"Most investors in CLEAR CHANNEL were thrilled that the private equity guys took radio off their hands," recalled MICHAEL NATHANSON, a media analyst at SANFORD C. BERNSTEIN & COMPANY. "Many had deep concerns because the industry was not growing during a period of economic expansion. So what would happen when things slowed down?"
"With an estimated $1.4 billion in cash on hand, the company appears to have enough to manage through the next few years as long as it does not violate its bank agreements," BEGLEY of MOODY’s said. The company has to pay $1.3 billion in interest annually on its debt, and it and analysts project that it needs more than $1.5 billion in cash flow this year.