10-15-2012
After the announcement Friday that Clear Channel would be repackaging debt, Standard and Poor's Ratings Service has affirmed its negative outlook on the company. "The negative outlook reflects CC Media's high debt leverage and low interest coverage metrics, which we believe will have to dramatically improve for the company to have flexibility to meet 2016 debt maturities." On Friday, Clear Channel announced plans to issue $2 billion of priority guarantee notes due 2019 in exchange for $2 billion of its bank debt due in 2014 and 2016.
The rationale behind the Standard & Poor's Ratings Services' rating on Clear Channel, "reflects the company's steep debt leverage and significant 2016 debt maturities. The proposed transaction extends about $2 billion of debt from 2014 and 2016 to 2019 and reduces 2016 maturities from $12 billion to a little over $10 billion. However, the interest rate on the new debt is about 5% higher than the existing term loan B debt. As a result, we expect that EBITDA coverage of interest will be very thin at about 1.2x and that discretionary cash flow will be only modestly positive in 2013, hindering the company's ability to repay debt and afford additional refinancing transactions with similar interest rate increases. The transaction increases the company's flexibility to repay 2014 maturities (currently $1.5 billion), which previously could only be repaid on a pro rata basis, and now permits the company to exchange and extend $3 billion of additional loans. We still view a significant increase in the average cost of debt or deterioration in operating performance for either cyclical, structural, or competitive reasons, as major risks as the company proceeds with a strategy to deal with its 2016 maturities. We view CC Media's financial risk profile as 'highly leveraged' (based on our criteria), given its significant refinancing risk, narrow EBITDA coverage of interest expense, and minimal discretionary cash flow compared with its debt burden. CC Media has a 'fair' business risk profile, because of its position as the largest global outdoor advertising company and largest U.S. radio station operator."
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