Clear Channel raising three quarters of a billion bucks


The financial architects at Clear Channel Communications are keeping the highly leveraged company well ahead of its debt maturities. In the latest move, the company is selling an additional $750 million of bonds that won’t be due until 2021.

The offering in a private placement to qualified institutional investors is an add-on to an existing issue of $1 billion of 9% priority guarantee notes due 2021 issued in February. As RBR-TVBR reported then the notes carry a requirement that replacement notes be registered for public trading within 210 days of the February 23, 2011 original issue date.

Clear Channel plans to use $250 million from the new offering to repay a portion of the company’s 5% legacy notes which mature in March 2012. The remaining $500 million is going into the company coffers to replenish cash on hand, since Clear Channel had already used a pile of cash to pay legacy notes which matured on March 15th and May 15th of this year.

Moody’s Investors Service gave the $750 million offering a Caa1 rating, well into junk bond territory, and restated its view that the company’s capital structure is “unsustainable” over the long haul, given the debt-to-EBITDA leverage of approximately 12.2 times as of March 31st.

“The add-on allows Clear Channel the opportunity to push an additional $750 million of debt beyond its 2014 (and 2016) maturity wall providing additional flexibility to the company, but is expected to result in increased interest expense as the company replaces modestly priced debt with meaningfully higher 9% fixed rate notes,” said Moody’s in its rating statement.

“Despite recent improvements in the company’s operating performance, which can be accredited to both improving economic conditions and meaningful cost reductions, Moody’s remains concerned the company may not be able to fund the approximate $4 billion of debt maturing in 2014. Notwithstanding the company’s weak balance sheet, Clear Channel possesses significant scale, geographic diversity and leading market positions in most of the 150 markets in which the company operates, providing modest support for the company’s rating,” said Moody’s.

RBR-TVBR observation: It is still a long way to 2014, allowing plenty of time for improving business and perhaps some non-core divestitures (as station prices improve) to reduce the high leverage ratio at Clear Channel. Also, as noted within the commentary by Moody’s the cash in Clear Channel’s corporate coffers could be used toward extending the maturity of its bank debt past 2014. We would note that most of that bank debt isn’t held by banks anymore, but rather by vulture capital funds who had hoped to force Clear Channel into Chapter 11 last year, but now have to deal with the reality that Clear Channel’s masterful financial maneuvers have eliminated the bankruptcy scenario, so the vultures now need to take whatever profits they can and move on.