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Rating Action:

Moody's assigns iHeartCommunications a B2 CFR upon projected exit from Bankruptcy; outlook stable

26 Apr 2019

New York, April 26, 2019 -- Moody's Investors Service (Moody's) assigned iHeartCommunications, Inc.'s (iHeart) a B2 corporate family rating (CFR), B1 senior secured term loan, B1 senior secured note, and Caa1 senior unsecured note rating. The probability of default rating was assigned at B2-PD. The outlook is stable.

The ratings are assigned as the company is scheduled to exit Chapter 11 bankruptcy on May 1st 2019. Upon exit from bankruptcy, iHeart will operate its broadcast radio and digital music services and separate from Clear Channel Outdoor Holdings, Inc. (Clear Channel Outdoor). As part of the bankruptcy process, $15.1 billion of debt will be reduced to $5.8 billion. The debt at Clear Channel Outdoor will not be impacted and was not part of the bankruptcy process. The company will no longer receive royalty fees from Clear Channel Outdoor following the separation and will make a net settlement payment of approximately $107 million to the outdoor business. iHeart is expected to either launch an IPO to raise additional equity which is projected to be used to paydown debt or list the existing equity shares without raising additional funds for the company.

The following is a summary of Moody's actions:

Assignments:

..Issuer: iHeartCommunications, Inc.

.... Corporate Family Rating, Assigned to B2

.... Probability of Default Rating, Assigned to B2-PD

.... Speculative Grade Liquidity Rating, Assigned to SGL-3

....Gtd Senior Secured Term Loan, Assigned B1 (LGD3)

....Gtd Senior Secured Global Notes, Assigned B1 (LGD3)

....Gtd Senior Unsecured Global Notes, Assigned Caa1 (LGD5)

Outlook Actions:

..Issuer: iHeartCommunications, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

iHeart's B2 CFR reflects the high pro forma leverage level of 6x as of Q4 2018 (excluding Moody's standard lease adjustments) following the exit from bankruptcy, but we expect leverage to decline from modest EBITDA growth as well as debt repayment. The company is constrained by the negative secular trends in the radio industry as well as its sensitivity to a decline in the economy. As a result, competition for listeners and advertiser dollars are expected to remain high going forward. iHeart benefits from its size as the largest radio operator in the US as well as its geographic diversity and leading market positions in most of the approximately 160 markets in which the company operates. The company also derives strength from its iHeartRadio service, live events, syndicated network, podcasting service, and data analytics services. iHeart has EBITDA margins above the industry average at 27% as of 2018. While most of the revenue comes from local advertising revenue, the company has an advantage in obtaining national advertising dollars given its leading position in the industry.

The SGL-3 liquidity rating reflects the company's adequate liquidity profile due to its $450 million ABL revolving credit facility due in 2023 (not rated by Moody's) as well as its projected cash balance of approximately $90 million pro forma for the transaction (including preferred equity proceeds and bankruptcy related settlement payments). The company is expected to have approximately $130 million in bankruptcy related fees and expenses due in 2019 and is anticipated to put cash in escrow on the emergence date to pay the majority of projected expenses. We expect free cash flow to be directed to debt repayment or reinvested back into the business in the near term. The company is projected to spend approximately $130 million in capex in 2019 and is not expected to pay a dividend in the near term.

The company will provide a revolving credit facility to Clear Channel Outdoor as a source of liquidity to the outdoor business upon separation, but we don't expect it to be drawn. The company is also projected to have $60 million in preferred equity outstanding which is not included in our 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 expected to be 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 projected to be covenant lite.

The stable outlook reflects our projection of low single digit revenue and EBITDA growth that is expected to lead to a modest reduction in leverage below 6x by the end of 2019. A successful equity raise has the potential to lead to additional debt reduction in the near term.

A reduction in 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 would be downgraded if EBITDA were to decline due to economic weakness or if secular pressures in the radio industry increased so that leverage increased above 6x. A deterioration in its liquidity position could also lead to negative rating pressure.

The principal methodology used in these ratings was Media Industry published in June 2017. 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, the company operates its iHeartRadio digital platform, live events, syndicated network, data analytic services, and podcasting service. iHeart filed for bankruptcy protection in March 2018. Consolidated revenue pro forma from the separation from Clear Channel Outdoor was approximately $3.6 billion as of 2018.

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 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.

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

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

John Diaz
MD - Corporate Finance
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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