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Rating Action:

Moody's assigns Caa1 ratings to Clear Channel Communications new Term Loan D

Global Credit Research - 10 May 2013

$1.5 Billion of debt Affected

New York, May 10, 2013 -- Moody's Investors Service (Moody's) assigned a Caa1 rating to Clear Channel Communications, Inc.'s (Clear Channel) proposed $1.5 billion term loan D. Clear Channel's Corporate Family Rating (CFR) is unchanged at Caa2. The outlook remains Stable.

The company has announced an amendment to its current credit facilities to exchange $1.5 billion of its $8.2 billion in term loan B & C's which mature in January 2016, into a new term loan D that matures two and half years later in July 2018. The security and guarantee package is expected to be identical to the existing term loans. While the final price has not been determined as of this press release, the term loan D would pay L+600 instead of the L+365 on the existing B &C tranche. There would be no required amortization and in the case of any mandatory prepayments to the bank loans, any paydowns would be applied first to the 2016 bank facilities. The maintenance covenant of the existing terms loans will be extended out to the term loan D's maturity date where it will be set at 8.75x.

The exchange offer follows the company's issuance of PGN notes and a draw down on its ABL facility in February 2013 to repay its TLA facility that was scheduled to mature in 2014. The transaction would reduce the amount of term loans maturing in January 2016 from $8.2 billion to $6.7 billion. $1.6 billion of cash pay and toggle notes mature in August 2016 and an additional $250 million of legacy notes mature in December 2016. While the transaction extends Clear Channel's debt maturity profile, it is expected to increase interest expenses by about $35 million annually, although final pricing has not yet been determined.

Details of today's rating actions are as follows:

Clear Channel Communications, Inc

...$1.5 billion Term Loan D due July 2018, Assigned a Caa1 LGD-2, 20% rating

..Corporate Family Rating, unchanged at Caa2

..Probability of Default Rating, unchanged at Caa3-PD

....Outlook, remains Stable

RATINGS RATIONALE

Clear Channel's Caa2 (CFR) reflect the very high leverage levels of 11.4x on a consolidated basis (excluding Moody's standard lease adjustments) and $8.6 billion of debt due in 2016 (pro-forma for the proposed exchange offer). The ratings also include weak free cash flow and interest coverage of 1.4x which will be further pressured by higher interest rates from future refinancings or extensions of its debt maturities. While the company has made progress extending its debt maturity profile, more progress will be needed and the anticipated increase in interest rates could be material. Even if Clear Channel is able to refinance its 2016 maturities, the company will remain vulnerable to a slowdown in the economy given the heightened sensitivity that its radio and outdoor businesses have to economic conditions. The combination of higher interest rates from a refinancing and lower EBITDA in the event of a future economic downturn could materially impair its interest coverage and liquidity position. In addition, there are secular pressures on its terrestrial radio business that could weigh on results as competition for advertising dollars and listeners are expected to increase going forward. Also incorporated in the rating, is the expectation that leverage levels will remain high over the rating horizon compared to the underlying asset value of the firm.

Despite the company's highly leveraged balance sheet, Clear Channel possesses significant share, geographic diversity and leading market positions in most of the 150 markets in which the company operates. The credit also benefits from its 89% ownership stake in Clear Channel Outdoor (CCO) which is one of the largest outdoor media companies in the world, although it is not a guarantor to Clear Channel's debt. Its outdoor assets generate attractive EBITDA margins, good free cash flow, and are expected to benefit from digital billboards that offer higher revenue and EBITDA margins than static billboards. However, its International operations are expected to be relatively weak in 2013 due to its exposure to Europe. The company's strong positions in radio and outdoor and recent sales initiatives have allowed it to grow its national ad sales faster than many competitors in the industry which we expect to continue. Clear Channel has also benefited from increased political spend in 2012 of $114 million, although weakness in its traffic division has pressured overall results. We anticipate revenue, EBITDA, and leverage will be largely unchanged in 2013 as weakness at International outdoor and its traffic business offset growth in Americas outdoor.

The SGL-3 liquidity rating reflects the company's adequate liquidity profile. Clear Channel benefits from its cash balance of approximately $722 million as of Q1 2013 and the absence of any material near-term debt maturities. Clear Channel benefits from its Corporate Services Agreement with CCO that allows for free cash flow generated at CCO to be upstreamed to Clear Channel, although a recent agreement with some CCO shareholders may serve to limit the size going forward. There is a revolving promissory note due from Clear Channel to CCO of $728 million as of Q1 2013, although a $200 million paydown would be required if the recent agreement is approved. CCU would receive 89% of the proceeds due to its ownership position so it would not materially impact their liquidity. Clear Channel remains dependent on CCO for free cash flow.

Clear Channel's $535 million ABL revolver matures in December 2017, but the maturity date will change to October 31, 2015 if greater than $500 million of the term loan facilities are outstanding one day prior to that date and May 3, 2016 if greater than $500 million of its 2016 senior notes are outstanding one day prior. $247 million was drawn on the facility as of Q1 2013. The company has a substantial cushion under its secured leverage covenant of 9.5x as of Q1 2013 (which excludes the senior notes at Clear Channel Worldwide Holdings, Inc ("CCW")). The covenant level steps down to 9.25x at the end of June 2013, 9x at the end of December 2013, and 8.75x at the end of December 2014. The current secured leverage metric, which is calculated net of cash, is 6.0x (as of Q1 2013 and defined by the terms of the credit agreement), down from 6.9x at the end of 2011 due largely to the dividend payment from CCO which was used to paydown senior secured debt. This represents a cushion in excess of 35% compared to the senior secured leverage covenant even after the covenant steps down to 9.25x at the end of 2Q 2013.

The stable outlook reflects our expectation for flat revenue and EBITDA performance which will lead to leverage levels being largely unchanged in 2013. The repayment of the Term Loan A early this year leaves only $461 million of debt due in 2014 and $250 million due in 2015 and allows the company flexibility to continue to focus on extending or refinancing the remaining $8.6 billion of debt maturing in 2016. The company has the ability to buy back its term loans through a Dutch auction and repurchase up to $200 million of junior debt which matures before January 2016. Given the minimal debt maturities in the near term, we expect the company to be able to meet its debt obligations through 2015 barring a material decline in the economy or a dramatic secular change in the radio industry.

A sustained improvement in revenue, EBITDA, and free cash flow that led to a reduction in leverage levels to well under 10x with improved enterprise values could lead to an upgrade. A significant portion of the 2016 debt would also need to be refinanced so that the company was well positioned to address its debt maturity profile.

The rating could be lowered if EBITDA were to materially decline due to economic weakness or if secular pressures in the radio industry escalate so that leverage increased back above 13x and valuations for the radio assets declined. Ratings would also be lowered if a default or debt restructuring is imminent due to inability to extend or refinance material amounts of the company's debt.

The principal methodology used in this rating was Global Broadcast and Advertising Related Industries published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Clear Channel Communications, Inc. with its headquarters in San Antonio, Texas, is a global media and entertainment company specializing in mobile and on-demand entertainment and information services for local communities and for advertisers. The company's businesses include radio broadcasting and outdoor displays (via the company's 89% ownership of Clear Channel Outdoor Holdings Inc. ("CCO")). Clear Channel's consolidated revenue for the LTM period ending Q1 2013 was approximately $6.2 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's assigns Caa1 ratings to Clear Channel Communications new Term Loan D
No Related Data.

 

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