Clear Channel Communications Inc., the radio and outdoor advertising company with about $20.7 billion of debt, increased the amount of loans on which it’s seeking to extend maturities.
The broadcaster bought by Bain Capital Partners LLC and Thomas H. Lee Partners LP in 2008, is extending $1.3 billion of term loans that will expire in July 2019, compared with an initial target of $1 billion, according to a statement today sent on Business Wire.
Clear Channel is enticing investors to roll their investment into the new term loan by offering more than double the interest rate in order to get three more years to turn around a business that’s posted losses every year since its buyout in 2008, according to data compiled by Bloomberg. The company faces $4.2 billion of debt coming due in 2016.
“It makes sense if you own the loans to extend because you’re getting a much bigger coupon,” Spencer Godfrey, an analyst at debt researcher KDP Investment Advisors Inc., said in a telephone interview. “But it’s not a game changer. It’s not like they are reducing debt.”
Clear Channel is proposing to pay interest of either 7.5 percentage points more than the London interbank offered rate on the new term loan E, or a base rate plus 6.5 percentage points, according to the statement, compared with 3.65 percentage points more than Libor on the existing debt. Lenders must reply to the amended request by 4 p.m. in New York on Dec. 11.
The company also is seeking to exchange notes due in 2016 for debentures maturing in 2021. As of 5 p.m. yesterday, $565.4 million had been tendered, according to the statement.
The proposal to extend its borrowings may increase interest payments at Clear Channel by as much as $55 million annually, Fitch Ratings wrote in a Nov. 27 report. The company’s interest expense rose to $1.58 billion in the 12 months ended June 30, from $451.9 million in 2007, the year before its $17.9 billion takeover, Bloomberg data show.
Clear Channel’s interest expenses have surpassed its operating income in every quarter since the end of 2008, data compiled by Bloomberg show. Its earnings before interest, taxes, depreciation and amortization have shrunk to $1.8 billion in the 12 months ended June 30 from $2.3 billion in 2007.
“The company is just treading water,” Godfrey said. “Actual debt outstanding will increase a modest amount. They’re getting past their 2016 maturities at the expense of dramatically increasing interest payments.”