What Moody’s Would Consider to be iHeart Default
Moody’s Investors Service says the fact that iHeartCommunications received a default notice on Monday from holders of at least 25% of the outstanding principal amount of four of the company’s Priority Guarantee Notes does not change the existing ratings; that includes the Caa2 CFR and Caa1 PGN rating.
iHeart owns 90% of Clear Channel Outdoor Holdings, and the default notice was tied to a share transfer iHeart conducted of $516 million of CCO’s stock to another subsidiary. The company filed suit to get a declaratory ruling that the transfer was allowed.
On Wednesday, the court issued a temporary restraining order rescinding the default notice.
Previously, Moody’s said if the $20 billion+ iHeart debt were to be accelerated, it would consider that a default.
It’s expecting iHeart “to look for ways to reduce leverage and extend its debt maturities in the near term.”
“A restructuring plan that led to a bankruptcy filing would be considered a default,” wrote Scott Van den Bosch, VP & Senior Credit Officer of Moody’s Corporate Finance Group, in a research note. Another option, such as exchanging debt for another security is possible and Moody’s would likely consider that a distressed exchange and categorize that as a limited default.
Buying back the company’s debt at a discount may also be considered a distressed exchange, although Moody’s view this option as less likely “given the limited improvement offered to the balance sheet.”
Meanwhile iHeart has hired Moelis & Co. as a financial adviser; Moelis would review offers made by a minority of the company’s senior creditors to potentially make the terms of the bet more attractive, sources tell Reuters. Were iHeartMedia to accept one of the offers, it could reduce the value of its debt and the interest it pays on it, though it could also end up treating its junior creditors less favorably, according to the sources.