S&P turns negative on Clear Channel


CC Media Holdings, the parent company of Clear Channel Communications, already has a none-too-high junk bond rating of CCC+ from Standard & Poor’s. But it could go down, as S&P has revised its ratings outlook for the company to negative from the previous positive.

“The outlook revision reflects our view that softening ad demand and global economic uncertainty could slow the pace of revenue growth at CC Media over the intermediate term, heightening refinancing risk around its 2014 and 2016 debt maturities,” said S&P credit analyst Michael Altberg.

According to the ratings agency, “Ad demand has slowed in the fourth quarter of 2011 in radio and outdoor, which we believe will continue in 2012 due to the weak global economy. In our view, such slower growth heightens refinancing risk surrounding US-based radio broadcaster and outdoor ad provider CC Media’s formidable debt maturities in 2014 and 2016. We are revising our ‘CCC+’ rating outlook on the company to negative from positive. The negative outlook reflects our expectation that softening ad demand and global economic uncertainty could slow the pace of revenue growth over the next few years.”

S&P noted that its CCC+ corporate rating reflects “the risks surrounding the longer-term viability of the company’s capital structure – in particular, refinancing risk relating to sizable secured and unsecured debt maturities in 2014 ($2.9 billion) and 2016 ($12.3 billion).” The analysis notes CC Media’s highly leveraged status, “significant refinancing risk,” slim EBITDA coverage of its interest expense. On the plus side, though, S&P noted that the company is the largest US radio operator.

The credit update said S&P believes CC Media has “more than ample liquidity to meet its roughly $562 million of unsecured pre-LBO notes that mature in 2012 and 2013 with cash on hand and modest discretionary cash flow.” The obvious concern is the much larger maturities in 2014 and 2016.

RBR-TVBR observation: The key for Clear Channel’s principal owners, Bain Capital and Thomas H. Lee Partners, is to keep the bills paid and hope for the economy and advertising demand to get better before those big debt maturities have to be refinanced in 2014 and 2016. S&P is now concerned that the recovery isn’t coming fast enough and strongly enough.