Fitch Rates CCU Escrow Corp's Senior Notes due 2018 'C/RR6'
NEW YORK -- April 30, 2014
Fitch Ratings has assigned a 'C/RR6' rating to CCU Escrow Corporation's (CCU
Escrow) $850 million 10% senior notes due 2018. Proceeds from the offering,
are expected to be used to fully redeem Clear Channel Communications, Inc.'s
(Clear Channel) 5.5% senior unsecured notes due 2014 ($409 million publicly
outstanding), 4.9% senior unsecured notes due 2015 ($241 million) and fees
related to the offering and note redemptions.
In addition, Clear Channel intends to redeem approximately $159 million of
2014 notes held at CC Finco (an unrestricted subsidiary), with the proceeds of
the redemption to be used for general corporate purposes. Since the notes are
expected to be ultimately the obligations of Clear Channel, and CCU Escrow is
expected to merge into Clear Channel, Fitch has not assigned an Issuer Default
Rating to CCU Escrow and has notched the issue rating off of Clear Channel's
The Rating Outlook for Clear Channel is Negative. A full list of rating
actions follows at the end of this release.
CCU Escrow is a new entity established for the issuance of the 10% senior
notes. At the closing of the note offering, CCU Escrow will deposit the gross
proceeds of the offering into a segregated escrow account. Prior to Clear
Channel assuming the notes, the notes will be secured by a first-priority lien
on the escrow account. The proceeds will be released upon satisfaction of
release conditions. If the proceeds are not released on or within 60 days
after the issuance of the notes, they will be redeemed by the escrow agent at
100% of the aggregate principal amount, using the proceeds held within the
escrow account. The material escrow release conditions include: 1) the
redemption of Clear Channel's 5.5% and 4.9% senior unsecured notes and 2) the
assumptions by Clear Channel of CCU Escrow's obligation under the new 10%
Following the redemption and assumption of the 10% notes by Clear Channel, CCU
Escrow will merge into Clear Channel (Clear Channel will be the surviving
entity) and the notes will rank pari passu with the existing senior unsecured
Legacy Notes. As with the Legacy Notes, the new notes will not be guaranteed
by Clear Channel's parent or any guarantor subsidiaries. Fitch notes that new
notes will not contain the equal and ratable clause under the existing legacy
notes indenture that could cause the existing legacy notes to become secured
in the future.
The aforementioned transaction removes the 2014 and 2015 maturities. Fitch
believes the company has sufficient liquidity (including cash on hand,
monetization of repurchased and outstanding notes, and asset sales) to meet
its debt service obligations. However, the transaction will result in
increased interest cost, which Fitch estimates at approximately $50 million.
Fitch expects free cash flow (FCF) to be negative over the next few years. The
ratings and Negative Outlook reflect the limited room within the credit
profile to endure any material deterioration in operations.
Fitch does not expect a material amount of absolute debt reduction over the
next several years, given the expected FCF. Instead, Fitch expects the company
to continue to focus on extending or repaying its term loans via issuance at
Clear Channel and CCOH.
As of March 31, 2014, Clear Channel had approximately $20.7 billion in
consolidated debt. Debt held at Clear Channel was $15.8 billion and consisted
--$8.2 billion secured term loans ($1.9 billion in 2016 and $6.3 billion in
--$4.3 billion secured PGNs, maturing 2019-2021;
--$94 million senior unsecured 10.75% cash pay notes, maturing August 2016;
--$128 million senior unsecured 11%/11.75% PIK toggle notes, maturing August
--$1.6 billion in senior unsecured 12% cash pay / 2% PIK notes maturing in
--$1.4 billion senior unsecured legacy notes, with maturities of 2014-2027.
Debt held at Clear Channel Worldwide Holdings, Inc. (CCWH) was $4.9 billion
and consisted of:
--$2.7 billion in senior unsecured 6.5% notes due in 2022;
--$2.2 billion in subordinated 7.625% notes due 2020.
At March 31, 2014, Clear Channel had $391 million of cash, excluding $270
million of cash held at CCOH.
Backup liquidity consists of an undrawn $535 million ABL facility (subject to
an undisclosed borrowing base) that matures in December 2017 and is subject to
Security and Guarantees
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. The LBO Notes and the exchange
notes benefit from a guarantee from the same entities, although it is
contractually subordinated to the secured debt guarantees. There is no
guarantee from Clear Channel Outdoor Holdings, Inc (CCOH) or its subsidiaries.
The legacy notes and the new 10% notes receive no guarantees.
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 assumes going concern EBITDA
at $840 million and 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 88% 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/RR4' rating for the bank debt and secured notes reflect Fitch's
estimate for a recovery range of 31%-50%. Fitch expects no recovery for the
senior unsecured legacy notes, the new 10% senior notes, LBO notes, and
exchange notes due to their position below the secured debt in the capital
structure, and they are assigned 'RR6'. However, Fitch rates the LBO and
exchange notes 'CC' given the subordinated guarantee.
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%,
and applies a 7x valuation multiple. Fitch estimates the enterprise value
would be $4 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 in the 31% to 50% 'RR4' range, leading to no notching from the IDR.
Key Rating Drivers:
Fitch's ratings concerns center on the company's highly leveraged capital
structure, with significant maturities in 2016; the considerable and growing
interest burden that is expected to generate negative FCF in the near term;
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 advertising space.
Negative: An inability to extend maturities would result in a downgrade. This
inability may derive from a prolonged consolidated cash burn, whether driven
by cyclical or secular pressures, reducing Clear Channel's ability to fund
debt service and near-term maturities. Additionally, cyclical or secular
pressures on operating results that further weaken credit metrics could result
in negative rating pressure. Lastly, indications that a DDE is probable in the
near term would also drive a downgrade.
Positive: The current Rating Outlook is Negative. As a result, Fitch's
sensitivities do not currently anticipate a rating upgrade.
Fitch has affirmed the following ratings:
--Long-term IDR at 'CCC';
--Senior secured term loans at 'CCC/RR4';
--Senior secured priority guarantee notes at 'CCC/RR4';
--Senior unsecured LBO notes and exchange notes due 2021 at 'CC/RR6';
--Senior unsecured legacy notes at 'C/RR6'.
The Rating Outlook for Clear Channel is Negative.
Clear Channel Worldwide Holdings, Inc.
--Long-term IDR at 'B';
--Senior unsecured notes at 'BB-/RR2';
--Senior subordinated notes at 'B/RR4'.
The Rating Outlook for Clear Channel Worldwide Holdings, Inc. is Stable.
Fitch has assigned a 'C/RR6' rating to CCU Escrow's 10% senior notes.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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