Report: CC Eyes Restructuring $18B Debt Load
May 14, 2009 at 4:59 AM (PT)
CLEAR CHANNEL COMMUNICATIONS has begun reaching out to lenders about restructuring the company's massive debt load just nine months after the company was acquired in a $27 billion leveraged buyout, sources tell THE NEW YORK POST, which writes:
"As part of those discussions, one topic being debated is a pre-packaged bankruptcy, one source said. A second person familiar with the matter stressed the talks are at an early stage.
"Both sources said the senior lenders might be interested in trading debt for assets, though such talks have not entered a serious stage, one of the sources said.
... one topic being debated is a pre-packaged bankruptcy.
"The quiet negotiations come at a precarious time for CLEAR CHANNEL: The company has been buffeted by the slowdown in advertising spending, and analysts watching the company have expressed concern the company could violate its loan terms later this year. What's more, just this week the company reported a first-quarter net loss of $418 million, vs. a profit of $800 million a year ago."
Would Lenders Support A Bankruptcy?
"What CLEAR CHANNEL has in its favor is that it owes senior lenders $16 billion of its $18 billion in long-term debt, and for the most part the senior lenders may not be interested in forcing a bankruptcy, said two sources close to the situation. A significant number of the lenders, including GSO CAPITAL, bought debt in CLEAR CHANNEL from underwriters, who used leverage to help reduce their exposure at a time when the credit markets were seizing up. Those lenders put around 20% down to buy a $1 billion loan, though by the time the deal closed the loan's value had already fallen to $800 million.
"In a bankruptcy, senior lenders get money back only if they recover more than 80% on their loans, as the rest would go to the underwriting banks that financed the loan sales to them. Yesterday, CLEAR CHANNEL's senior loans were trading slightly above 50%, which means there is little chance of recovery.
"Also a factor working against a bankruptcy: CLEAR CHANNEL owners THL PARTNERS and BAIN CAPITAL own debt in the company, and likely do not want to foreclose on the business. Nevertheless, there will soon be a cash squeeze. One source said the company will generate $1.2 billion in cash flow this year, even though it has $1.6 billion in interest payments. The second source pegged the cash flow at $1.7 billion.
"CLEAR CHANNEL does have $1.6 billion in cash which, at its current burn-through rate, will last 18 months," a source said.