Moody's: Clear Channel Facing 2016 $10B Debt

Clear Channel Communications (CCU) is facing a stiff challenge in managing the more than $10 billion of debt that will come due in 2016 without being forced into a restructuring of its balance sheet, according to Moody's Investors Service. Clear Channel has made progress in dealing with near-term maturities, but by 2016 it will have debt levels that are greater than its expected asset value, says Moody's. "The possibility of a restructuring or a distressed exchange remains high," a team of Moody's analysts headed by Scott Van den Bosch says in the report. "Efforts to avoid a restructuring and refinance or extend its debt load will likely depend on the receptivity of the financial markets and moderate underlying interest rates." Clear Channel has taken a series of steps to reduce debt and move out maturities in 2012, which ultimately delay due debt but 2016 looms large, starting in January, when $8.2 billion of bank debt comes due, followed by $1.9 billion of notes later that year. "If CCU is to have a realistic chance of refinancing USD10.1 billion in debt in 2016, its operating performance will need to improve well above current levels," says Van den Bosch. Moody's reviewed the situation under three different scenarios and concluded that only its upside scenario will place the company in a position to refinance the debt. That scenario assumes revenue growth of 1% in 2012, followed by 2% in 2013, 4% in 2014 and 4% in 2015. "That would help reduce debt to EBITDA and bring down debt leverage to a level at which equity would be about breakeven and the company could generate USD250-300m a year," according to the Moody's assessment. "This scenario could position the company to refinance or extend its 2016 maturities and allows for other opportunities to delever the balance sheet," says Moody's. Reuters notes that one other challenge highlighted in the report is a change in the holders of the company's bank debt. These are less likely to be the Collateralized Loan Obligation or relationship banks that used to dominate the market. CCU's debt structure was sold after the economic downturn and now comprises more distressed or total return investors than previously, some of which may be more willing to allow the company file for bankruptcy to force a restructuring. Says the Moody's report, "We acknowledge that Private Equity sponsors Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. have sizeable influence in the loan market with traditional investors, but we believe that influence will not be as strong with many of the distressed investors that own the bank debt. As a result, refinancing or amending and extending its bank debt might be more difficult and lead to higher interest rates than would normally be the case."