Clear Channel Communications Inc. is offering to double interest to push out maturities on some of the $4.3 billion it owes, just as the most-leveraged U.S. broadcaster suffers the first cash-flow deficit in four years, according to Bloomberg.
The company said on Nov. 25 that it’s seeking to extend about $1.8 billion of borrowings due in 2016 by three years to five years, which Fitch Ratings estimates would boost interest costs as much as $55 million annually.
While the proposal gives Clear Channel more time to turn around a business that’s posted losses every year after Bain Capital Partners LLC and Thomas H. Lee Partners LP took control in 2008, it also raises the company’s risk of missing interest payments on $20.7 billion of debt, according to Moody’s Investors Service. After capital expenses, Clear Channel ran a deficit from operations in the year ended June, meaning the company had to eat into cash that’s declined more than 60 percent since the end of 2010 to $704.2 million.
“Refinancing at a higher rate is never a positive,” Scott Van den Bosch, a New York-based senior analyst at Moody’s, said in a telephone interview. “It’s not a cure-all, but it buys them time to improve the balance sheet.”
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.
“Ultimately, they need to grow Ebitda and generate free cash flow to repay debt to delever the balance sheet, which will increase the opportunities to sell assets to repay additional debt,” Moody’s analyst Van den Bosch said.
Its ratio of debt to Ebitda, or leverage, is 11.7 times, the most among U.S.-based broadcasters with at least $100 million of annual sales, Bloomberg data show.