Fitch: Clear Channel's Ratings Unaffected By Settlement
NEW YORK -- April 8, 2013
Fitch Ratings' Issuer Default Ratings (IDR) of Channel Communications, Inc.
(Clear Channel), 'CCC' and Clear Channel Worldwide Holdings, Inc., 'B', are
unaffected by the proposed settlement of the shareholder lawsuit on transfer
of funds between Clear Channel Outdoor Holdings (CCOH) and Clear Channel. A
full list of ratings follows at the end of this release.
If approved by the Delaware Court of Chancery, within 30 days CCOH would
demand payment of $200 million under the Revolving Promissory Note between
Clear Channel and CCOH. Simultaneously, CCOH would declare a $200 million
dividend (to be paid on the date the demand payment is made). Approximately
$178 million of the dividend would be received by Clear Channel, with the
remaining $22 million going to CCOH's other shareholders. The public leakage
of the dividend is small and can be handled with current liquidity.
The settlement also includes an amendment to the interest payable under the
Revolving Promissory Note, whereby the interest rate would adjust under
certain circumstances, and establishes a committee of the board to monitor the
Revolving Promissory Note.
At Dec. 31, 2012, Clear Channel had $663 million of cash, excluding $562
million of cash held at CCOH. There is $729 million of CCOH funds swept to
Clear Channel for cash management purposes. Clear Channel can access these
funds and use them at its discretion, although they are due to CCOH on demand.
Backup liquidity consists of a $535 million (subject to a borrowing base) ABL
facility, $270 million outstanding as of Feb. 28, 2013. The ABL facility
matures in December 2017 and is subject to springing maturities. The ABL
facility maturity date would be October 2015 if more than $500 million is
outstanding under the term loan credit facilities; May 2016 if more than $500
million in aggregate is outstanding under the 10.75% senior cash pay notes due
2016 and 11.00%/11.75% senior toggle notes due 2016; and in the event that any
of the afore mentioned debt is amended or refinanced to a maturity date that
is before December 2017 and an aggregate amount of $500 million is
outstanding, the maturity of the ABL facility will be one day prior to the
maturity date of such debt. The ABL facility is subject to an undisclosed
borrowing base; $321 million outstanding at first quarter 2011, the last
reported date before the facility was repaid.
Fitch expects annual free cash flow (FCF) of approximately $100 million in
2013. Substantially all FCF comes from CCOH. The company's next material
maturity is Clear Channel's $461 million of legacy notes.
The bank debt and PGNs are secured by the capital stock of Clear Channel,
Clear Channel's non-broadcasting assets (non-principal property), and a second
priority lien on the broadcasting receivables that securitize the ABL
The bank debt and secured notes are guaranteed on a senior basis by Clear
Channel Capital I, Inc. (holding company of Clear Channel), and by Clear
Channel's wholly owned domestic subsidiaries. There is no guarantee from CCOH
or its subsidiaries. The leveraged buyout (LBO) notes benefit from a guarantee
from the same entities, although it is contractually subordinated to the
secured debt guarantees. The legacy notes are not guaranteed.
Clear Channel's Recovery Ratings reflect Fitch's expectation that the
enterprise value of the company will be maximized in a restructuring scenario
(going concern), rather than a liquidation. Fitch employs a 6x distressed
enterprise value multiple reflecting the value of the company's radio
broadcasting licenses in top U.S. markets. Fitch applies a 20% discount to
Radio EBITDA. Fitch assumes that Clear Channel has maximized the debt-funded
dividends from CCOH and used the proceeds to repay bank debt. Additionally,
Fitch assumes that Clear Channel would receive 89% of the value of a sale of
CCOH after the CCOH creditors had been repaid. Fitch estimates the adjusted
distressed enterprise valuation in restructuring to be approximately $7
The 'CCC' rating for the bank debt and secured notes reflects Fitch's belief
that although the current recovery expectations are near the bottom of the
'RR3' (51%-70%) range, an 'RR4' (31%-50%) rating is appropriate given the
complexity and uncertainty of the situation, and the proportion of secured
debt in the capital structure. Fitch expects no recovery for the senior
unsecured legacy notes and LBO notes due to their position below the banks in
the capital structure, and they are assigned 'RR6'. However, Fitch rates the
LBO notes 'CC' and the legacy notes 'C', given the formers' receipt of a
subordinated guarantee and the latters' lack thereof.
CCOH's Recovery Ratings also reflect Fitch's expectation that enterprise value
would be maximized as a going concern. Fitch stresses outdoor EBITDA by 15%,
to approximately the level where the company could not cover its fixed
charges, and applies a 7x valuation multiple. Fitch estimates the enterprise
value would be $3.9 billion. This indicates 100% recovery for the unsecured
notes. However, Fitch notches the debt up only two notches from the IDR given
the unsecured nature of the debt. In Fitch's analysis, the subordinated notes
recover 36%, indicating 'RR4' and no notching from the IDR. There is little
flexibility within the 'RR3' rating category in Fitch's view, and incremental
debt could result in a downgrade of these notes.
Fitch's ratings concerns center on the company's highly leveraged capital
structure, with significant maturities in 2016 (approximately $10 billion);
the considerable and growing interest burden that pressures FCF; technological
threats and secular pressures in radio broadcasting; and the company's
exposure to cyclical advertising revenue. The ratings are supported by the
company's leading position in both the outdoor and radio industries, as well
as the positive fundamentals and digital opportunities in the outdoor
Fitch estimates that total leverage was 11.4x at Dec. 31, 2012, with secured
leverage of 7.1x. Fitch does not expect a material amount of total debt
reduction over the next several years, given minimal consolidated FCF.
Instead, Fitch expects the company to continue to focus on chipping away at
its term loans via issuance at Clear Channel and CCOH.
Pro forma for the new PGN issuance consolidated debt is $21.1 billion. Debt
held at Clear Channel was $16.2 billion and consisted primarily of:
--$8.2 billion secured term loans (B and C) maturing January 2016;
--$4.3 billion secured PGNs, maturing 2019-2021;
--$270 million ABL facility;
--$796 million senior unsecured 10.75% cash pay notes, maturing August 2016;
--$830 million senior unsecured 11%/11.75% PIK toggle notes, maturing August
--$1.4 billion senior unsecured legacy notes, with maturities of 2014-2027.
Positive: Positive rating actions could result from a material reduction in
secured leverage, as well as agreements with the term loan holders to extend a
substantially larger portion of its term loan maturities long enough that
Fitch believes the company will be better able to address them via a
combination of cash payments, public debt, and refinancing of bank loans.
Negative: A downgrade could result from prolonged consolidated cash burn,
which would reduce Clear Channel's ability to fund near-term maturities.
Additionally, cyclical or secular pressures on operating results that further
weaken credit metrics, reducing the potential for refinancing/extension, could
result in negative rating pressure. Lastly, indications that a DDE is probable
in the near term would also drive a downgrade.
Fitch currently rates Clear Channel and its subsidiary as follows:
--Long-term IDR 'CCC';
--Senior secured term loans and senior secured revolving credit facility (RCF)
--Senior secured priority guarantee notes 'CCC/RR4';
--Senior unsecured LBO notes 'CC/RR6';
--Senior unsecured legacy notes 'C/RR6'.
Clear Channel Worldwide Holdings, Inc.
--Long-term IDR at 'B';
--Senior unsecured notes 'BB-/RR2';
--Senior subordinated notes 'B/RR4'.
The Rating Outlook is Stable
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
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Rolando Larrondo, +1 212-908-9189
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