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Hedge Fund Clear Channel Outdoor Defends $656 Million Transfer to Parent

A committee representing Clear Channel Outdoor Holdings Inc. (CCO)’s board has rejected a hedge fund’s charge that the billboard operator made improper payments to its parent company and the panel is preparing a response, according to a person familiar with the matter.

Clear Channel Outdoor, based in San Antonio, formed a committee of independent directors in December to evaluate accusations that the company improperly transferred $656 million to parent Clear Channel Communications Inc., the radio broadcaster owned by Bain Capital LLC and Thomas H. Lee Partners LP. JHL Capital Group LLC, a $1.5 billion hedge fund based in Chicago, said in a Nov. 29 letter that Clear Channel Outdoor’s board breached its duty to shareholders by paying an “unlawful dividend” to its parent.

The payments benefit the outdoor advertising firm’s majority stockholder “to the exclusion of CCO’s minority shareholders,” and were “obtained in an unfair process and at an unfair price,” the letter says, according to a person in possession of it, who asked not to be identified because he wasn’t authorized to discuss it.

Clear Channel Outdoor is 89 percent owned by Clear Channel Communications, with the rest held by public shareholders.

The committee’s lawyer said in a March 1 response to JHL Capital that the money transferred between the companies is in accordance with a “corporate services agreement” made in 2005 and disclosed to investors in Clear Channel Outdoor’s filings for an initial public offering.

‘Lacks Standing’

“The money swept by CCU is in fact a loan and not the payment of a dividend,” the committee said in its letter, a copy of which was obtained by Bloomberg News. It said that because JHL Capital was not a stockholder at the time of the IPO, it “lacks standing to challenge the arrangements.”

The committee said in the letter it has almost completed its review and will send a written response addressing JHL Capital’s concerns by March 9. The letter was signed by Alan J. Bogdanow, an attorney with Vinson & Elkins LLP, a Houston-based law firm that is legal counsel to the committee.

Bogdanow, a partner in the firm’s Dallas office, didn’t immediately respond to a telephone call seeking comment.

JHL Capital’s goal is to have Clear Channel Communications’ private equity owners return some of the money to its subsidiary, which could then be available for shareholder dividends, according to the person possessing a copy of the hedge fund’s letter. Bain and Thomas H. Lee bought Clear Channel Communications in July 2008 for $17.9 billion, before credit markets froze and the recession caused a drop in advertising demand.

Trimming Debt

Alex Stanton, a spokesman for Bain, and Matthew Benson, a spokesman for Thomas H. Lee, declined to comment. Both firms are based in Boston.

JHL Capital last year boosted its stake in Clear Channel Outdoor to 1.6 percent, according to a Dec. 31 filing. If the hedge fund maintains its holding through March 12, it will receive $3.95 million as part of a dividend announced last month.

Wendy Goldberg, a spokeswoman for Clear Channel Outdoor, declined to comment on the committee’s letter. In an e-mailed statement today, she said, “We believe that all actions of the Board have been in accordance with the law and its duties to all CCOH stockholders.”

Clear Channel Outdoor emerged from a 2005 spinoff that also created Clear Channel Communications and Live Nation, the events promoter. Clear Channel Outdoor raised $2.2 billion through bonds earlier this month to help trim debt. The parent company is saddled with $1.3 billion in interest payments this year, according to a Feb. 21 regulatory filing.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editors responsible for this story: Rob Golum at rgolum@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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