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Rating Action:

Moody's affirms iHeart's B2 CFR; outlook changed to negative

24 Apr 2020

New York, April 24, 2020 -- Moody's Investors Service, ("Moody's") affirmed iHeartCommunications, Inc.'s (iHeart) B2 Corporate Family Rating (CFR) and B2-PD Probability of Default Rating (PDR). The B1 rating on the senior secured term loan, B1 rating on the senior secured notes, and Caa1 rating on the senior unsecured notes were also affirmed. The outlook was changed to negative from stable.

The negative outlook reflects the impact of the coronavirus outbreak on the economy which Moody's expects will materially impact radio advertising revenue in the near term and lead to higher leverage levels and lower cash outflows, although iHeart's significant cash balance is projected to provide sufficient liquidity. The Speculative Grade Liquidity (SGL) rating remains unchanged at SGL-3.

Outlook Actions:

..Issuer: iHeartCommunications, Inc.

...Outlook, Changed To Negative From Stable

Affirmations:

..Issuer: iHeartCommunications, Inc.

.... Probability of Default Rating, Affirmed B2-PD

.... Corporate Family Rating, Affirmed B2

....Senior Secured Bank Credit Facility, Affirmed B1 (LGD3)

....Senior Secured Regular Bond/Debenture, Affirmed B1 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

RATINGS RATIONALE

iHeart's B2 CFR considers the high leverage of 6.1x (as of LTM Q4 2019, excluding Moody's standard lease adjustments) as well as Moody's projections that leverage will increase substantially in the near term due to the impact of the coronavirus outbreak on radio advertising revenue. The radio industry is also being negatively affected by the shift of advertising dollars to digital mobile and social media as well as heightened competition for listeners from a number of digital music providers. Secular pressures and the cyclical nature of radio advertising demand have the potential to exert substantial pressure on EBITDA performance over time. iHeart is expected to take aggressive cost cutting actions to offset significant revenue declines in the near term and will be focused on preserving liquidity until economic conditions improve. iHeart's live event business will be disrupted by the pandemic, but the operating expenses for live events are largely variable and sponsorship and live events accounted for less than 6% of revenue in 2019.

iHeart benefits from its size as the largest radio operator in the US, geographic diversity and leading market positions in most of the approximately 160 markets in which it operates. The geographically diversified footprint may support performance if some markets are able to open in the near term even as other markets remain largely closed due to the coronavirus outbreak. iHeart also derives strength from its diversified service offering including the iHeartRadio service, live events, syndicated network, podcasting service, and data analytic services. Moody's expects iHeart's podcasting service to be an important contributor to growth going forward. iHeart has EBITDA margins above the industry average at 26% as of LTM Q4 2019. While local advertising revenue accounted for the vast majority of revenue historically, national advertising has been an increasing contributor to revenue. iHeart has an advantage in obtaining national advertising dollars given its leading position in the industry.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The radio industry sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in iHeart's credit profile have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and iHeart remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on iHeart of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

A governance consideration that Moody's considers in iHeart's credit profile is its moderate financial policy. Since emerging from bankruptcy and separating from Clear Channel Outdoor Holdings, Inc., iHeart has pursued a relatively conservative financial policy and is projected to be focused on debt repayment after the impact of the coronavirus subsides. iHeart is a publicly traded company listed on the Nasdaq Stock Exchange.

The SGL-3 reflects iHeart's adequate liquidity profile supported by its $647 million cash balance and $450 million ABL revolving credit facility due in 2023 (not rated by Moody's), with $350 million drawn as of March 31, 2020. Free cash flow is projected to be negatively impacted in the near term due to the impact of the coronavirus outbreak on the economy over the next few quarters, but the significant cash balance provides sufficient liquidity. Moody's expects iHeart to remain focused on preserving liquidity and will look to reduce capex levels during 2020 to between $75 and $95 million ($112 million in 2019) and will take significant cost reduction measures. iHeart also has $60 million in preferred equity outstanding which is not included in Moody's leverage calculation but raises the potential for free cash flow or additional debt to be used to repay the preferred over time. The ABL credit facility is subject to a fixed charge coverage ratio of at least 1x if borrowing availability is less than the greater of $40 million and 10% of the aggregate commitments for two consecutive days. The term loan and secured note are covenant lite. Moody's projects iHeart will remain in compliance with the ABL covenant.

The negative outlook reflects Moody's view that iHeart will experience material declines in revenues and EBITDA in the next few quarters due to the impact of the coronavirus outbreak on the economy and radio advertising revenue. The outlook also incorporates Moody's expectation for the company's debt-to-EBITDA leverage to increase significantly and liquidity position to deteriorate in the near term. Political advertising revenue is projected to support results as the election approaches at the end of 2020, while iHeart's podcasting business is expected to continue to grow in importance.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Although unlikely in the near term, a reduction in iHeart's leverage to under 5x with sustained organic revenue and EBITDA growth with stable EBITDA margins could lead to an upgrade. Free cash flow as a percentage of debt would also have to be well above 5% with a strong liquidity position and no near term debt maturities.

The rating could be downgraded if EBITDA were to decline due to economic weakness or if secular pressures in the radio industry increased so that leverage was expected to increase and remain above 6x. A deterioration in iHeart's liquidity position could also pressure the ratings.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

iHeartCommunications, Inc. (iHeart) with its headquarters in San Antonio, Texas, is the leading terrestrial radio operator in the US. In addition, iHeart operates its iHeartRadio digital platform, live events, syndicated network, data analytic services, and podcasting service. iHeart emerged from Chapter 11 bankruptcy protection and separated from Clear Channel Outdoor Holdings, Inc. in Q2 2019. Revenue pro forma for the separation from Clear Channel Outdoor Holdings, Inc. was approximately $3.7 billion as of Q4 2019.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Scott Van den Bosch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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