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Tuesday, September 23, 2014

Fitch Ratings Believes iHeart Can Meet Debt Obligations


Influential Fitch Ratings is maintaining the 'CCC/RR4' rating on iHeartCommunications, Inc.'s (formerly Clear Channel Communications, Inc.) latest offering of $250 million of 9.0% Priority Guarantee Notes (PGNs) due 2022. The notes are being issued as part of the same series as the $750 million of PGNs due 2022 that were issued on Sept. 10, 2014, and rated 'CCC/RR4'. Proceeds from the offering are expected to be used to prepay $245.9 million in Term Loan B due 2016 and $4.1 million in Term Loan C due 2016 and to pay fees and expenses related to the offering. iHeart's Issuer Default Rating (IDR) is 'CCC' and Clear Channel Worldwide Holdings, Inc. (CCWH) is 'B'. The Rating Outlook on iHeart is Negative and on CCWH is Stable.

The add-on PGNs are expected to share the same terms as the existing PGNs due 2022. Following the redemption, iHeart will have $916 million and $15 million in Term Loan B and Term Loan C remaining, respectively, and will have $1.2 billion in total maturities for 2016. The transaction is expected to incrementally increase total interest cost, but Fitch believes the company has adequate liquidity (including cash on hand, monetization of repurchased and outstanding notes, and asset sales) to meet its debt service obligations. Fitch expects free cash flow (FCF) to be negative over the next few years. The ratings and Negative Outlook reflect the limited room within the credit profile to endure any material deterioration in operations. Fitch calculates iHeart's interest coverage ratio (EBITDA/Gross Interest Expense) at 1x as of June 2014, and the company paid more than $1.5 billion in cash interest on an LTM basis.

Fitch does not expect a material amount of absolute debt reduction over the next several years, given the expected negative FCF. Instead, Fitch expects the company to continue to focus on extending or repaying its term loans via issuance at iHeart and Clear Channel Outdoor Holdings, Inc (CCOH).

Pro forma for the aforementioned transaction, iHeart has approximately $21.1 billion in consolidated debt (includes debt held at CC Finco LLC). Debt held at iHeart is $16.2 billion and consists of:
  • $7.2 billion secured term loans ($931 million in 2016 and $6.3 billion in 2019)
  • $5.3 billion secured PGNs, maturing 2019-2022
  • $2.1 billion in senior unsecured 12% cash pay / 2% PIK notes maturing in February 2021 (includes CC Finco LLC position of $423 million)
  • $1.6 billion senior unsecured notes (including $725 million in legacy notes), with maturities of 2016-2027.
Debt held at Clear Channel Worldwide Holdings, Inc. (CCWH) is $4.9 billion and consists of:
  • $2.7 billion in senior unsecured 6.5% notes due in 2022
  • $2.2 billion in subordinated 7.625% notes due 2020.
Liquidity

At June 30, 2014, iHeart had $572 million of cash, excluding $226 million of cash held at CCOH.

Backup liquidity consists of an undrawn $535 million asset-backed loan (ABL) facility (subject to an undisclosed borrowing base) that matures in December 2017 and is subject to springing maturities.

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