Fitch Ratings Reacts To Clear Channel's Debt-For-Notes Deal

Mixed Feelings

In the wake of last week's news (NET NEWS 10/12) that CLEAR CHANNEL COMMUNICATIONS, INC. launched a private offer to exchange up to $2 billion aggregate principal amount of term loans under its cash flow credit facilities for the same amount of new 9% priority guarantee notes due 2019, comes a mixed review from FITCH RATINGS.

The CLEAR CHANNEL swap is being accompanied by moves to amend the company's credit facilities to allow up to $5 billion exchange offers of term loans for new debt securities and give the company more repayment flexibility, with lender acceptance of the $2 billion debt-for-notes swap contingent on accepting the amendments. Eligible lenders who want to take the deal have until NOON (ET) on OCTOBER 19th.

It has been Fitch's view that Clear Channel's ability to remain a going concern will require flexibility on the part of 2016 term-loan holders by way of maturity extension.

FITCH RATINGS has affirmed the "CCC" Issuer Default Rating of CLEAR CHANNEL as well as the "B" Rating of CLEAR CHANNEL WORLDWIDE HOLDINGS, INC. FITCH expects to give a "CCC/RR4" rating to the proposed debt-for-notes deal.

THE HERALD ONLINE reports, "FITCH views CLEAR CHANNEL's offer to exchange up to $2 billion of term loans for new issue PGNs, as well as its concurrent pursuit of various amendments to its credit facilities, as material positives for the capital structure. Assuming the transaction is completed as proposed, it will extend $2 billion of maturities by more than three years (under FITCH's expectations that the vast majority of extending lenders will be 2016 holders), and reduce the 2016 maturity wall from $12.1 billion to $10.1 billion.

"This will provide the company with incremental flexibility in managing its intermediate term capital structure. One negative of the transaction is the higher coupon on the new PGNs relative to the term loan, which will increase annual interest expense by approximately $100 million. However, consolidated interest expense could be subsequently reduced by the expiration of an interest rate swap in SEPT. 2013, as well as any potential refinancing of the CCWW 9.25% unsecured notes."

"CLEAR CHANNEL pre-obtained the commitment of 46% of its cash flow credit facility holders," adds THE HERALD ONLINE, citing FITCH, and that "demonstrates that a significant portion of CLEAR CHANNEL's lender base is willing to extend their commitments and work with the company. It has been FITCH's view that CLEAR CHANNEL's ability to remain a going concern will require flexibility on the part of 2016 term-loan holders by way of maturity extension. The lenders would have to believe that any leeway would provide CLEAR CHANNEL with the ability to improve its capital structure, not merely prolong the inevitable."

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