There is a big circle around the year 2016 in terms of debt maturity for Clear Channel, but a new note exchange offer will go a long way towards eliminating the possibility of a default on paying what was to come due at that point. However, it will increase the risk of defaulting on the payment of elevated interest obligations.
The maneuver will kick maturities forward all the way from August 2016 to February 2021. Moody’s has rated it Ca and is leaving the company’s Corporate Family Rating at Caa2.
CCME has also increase a term loan from $4B to $5B, reducing the $8.2B coming due in 2016 to $3.2B, which according to Moody’s will open the door to further machinations to deal with the 2016 maturity.
Moody’s believes the company is taking advantage of current economic conditions to manage its risks. The upshot of the moves is a $155M increase in its annual interest bill with another $3M-$11M coming depending on how the exchange offer works out.
Moody’s Scott Van den Bosch explained, “Clear Channel has taken advantage of favorable market conditions to fundamentally change its risk profile from a risk of a potential default at maturity in 2016 to a potential interest payment default if the economy should enter another economic recession. However, given the resources at the company’s disposal, this risk may be more manageable for Clear Channel than the maturity risk the company previously faced.”
RBR-TVBR observation: Do you ever get the feeling that Clear Channel is a talented regular at one of those rodeo-themed night clubs that makes an electronic bull the center of attention? Clear Channel is taking the best moves the bull has to offer and hanging on with deftness and aplomb.
If we read Moody’s right, in this particular maneuver, Clear Channel has effectively switched from hanging on with its right hand to its left, reducing the likelihood of being thrown from the bull in one fashion but increasing the likelihood it will be tossed some other way.
At the end of the day, it appears that Clear Channel has once again bought more time, and the more time it buys, the better its chances of one day emerging from its structural financial woes.
But if the economy goes south and cash flow starts to be a problem, watch out!
