Fitch Notes Concerns Issuing Clear Channel's Priority Guarantee Notes A 'CCC/RR4' Rating

Re-structuring Ahead?

In the wake of last THURSDAY's news (NET NEWS 2/21) that CLEAR CHANNEL COMMUNICATIONS intends to offer, subject to market and customary conditions, $500 million in aggregate principal amount of priority guarantee notes due 2021, in a private offering, FITCH RATINGS has assigned a 'CCC/RR4' rating to the $575 million senior secured priority guarantee note due 2021, noting some concerns about CLEAR CHANNEL's "highly leveraged capital structure."

FITCH notes, "proceeds of the issuance, along with proceeds from borrowings under CLEAR CHANNEL's receivable credit facility and cash on hand, will be used to repay the $847 million outstanding under the term loan A due in 2014. FITCH views the transaction favorably as a meaningful portion of the company's 2014 maturities are extended (remaining 2014 maturities are CLEAR CHANNEL's $461 million of legacy notes). One negative of the transaction is the higher coupon on the new PGNs relative to the term loan, increasing annual interest expense by approximately $40 million."

The company will be maximized in a restructuring scenario, rather than a liquidation.

"CLEAR CHANNEL's Recovery Ratings reflect FITCH's expectation that the enterprise value of the company will be maximized in a restructuring scenario (going concern), rather than a liquidation," continues FITCH. "Fitch assumes that CLEAR CHANNEL has maximized the debt-funded dividends from CCOH and used the proceeds to repay bank debt. Additionally, FITCH assumes that CLEAR CHANNEL would receive 89% of the value of a sale of CCOH after the CCOH creditors had been repaid. FITCH estimates the adjusted distressed enterprise valuation in restructuring to be approximately $7 billion."

Why did FITCH issue this rating? The company's ratings concerns center on CLEAR CHANNEL's "highly leveraged capital structure, with significant maturities in 2016 (approximately $10 billion); the considerable and growing interest burden that pressures FCF; technological threats and secular pressures in radio broadcasting; and the company's exposure to cyclical advertising revenue. The ratings are supported by the company's leading position in both the outdoor and radio industries, as well as the positive fundamentals and digital opportunities in the outdoor advertising space."

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