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.
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