Tuesday, February 25, 2014

Report: Assets Sales Provide Liquidity For Clear Channel

Clear Channel Communications, Inc.'s recent asset sales for total proceeds of over $420 million are in line with Fitch's expectation that the company will utilize several levers at its disposal to support its liquidity position. Clear Channel's 'CCC' issuer default rating (IDR) and Negative Rating Outlook remain unchanged despite the asset sales transaction providing positive near-term liquidity.

Clear Channel has agreed to sell its 50% stake in Australian Radio Network (ARN) to APN News & Media Limited for approximately $220 million in net proceeds. Fitch believes that ARN provided $10 million to $15 million in annual distributions to Clear Channel. In addition, Clear Channel sold approximately half of its 14% senior notes due 2021 position (12% per annum cash coupon plus a 2% per annum PIK), held at an unrestricted subsidiary, for approximately $200 million in proceeds.

Fitch believes the bolstering of liquidity from these proceeds is favorable to the credit profile, despite the loss of annual distributions from ARN and increase in cash interest, which will further pressure free cash flow (FCF). Fitch expects FCF will be negative over the next few years. The ratings and Negative Rating Outlook reflect the limited room within the credit profile to endure any material deterioration in operations.

Fitch believes that Clear Channel has sufficient liquidity to cover its 2014 and 2015 maturities, totaling $461 million and $250 million, respectively. However, Clear Channel will need to rely on the credit markets and bank lenders to extend a material portion of its 2016 maturities totaling $2.4 billion in aggregate. Upcoming maturities include $461 million 5.5% notes due 2014; $250 million 4.9% notes due 2015; and $2.4 billion in aggregate, consisting of $250 million 5.5% notes, $1.9 billion in term loans, and $222 million in cash pay and toggle notes due 2016. As of Dec. 31, 2013, Clear Channel had total consolidated debt of $20.5 billion.

An inability by Clear Channel to extend maturities would result in a rating downgrade. This inability may derive from a prolonged consolidated cash burn, whether driven by cyclical or secular pressures, reducing Clear Channel's ability to fund debt service and near-term maturities. Additionally, cyclical or secular pressures on operating results that further weaken credit metrics could result in negative rating pressure. Lastly, indications that a distressed debt exchange DDE is probable in the near term would also drive a rating downgrade.

At Dec. 31, 2013, Clear Channel had approximately $813 million in cash (pro forma for sale proceeds discussed above), excluding $315 million of cash held at Clear Channel Outdoor Holdings (CCOH). Liquidity is further supported by a $535 million asset asset-backed loan (ABL) facility (subject to an undisclosed borrowing base), $247 million outstanding as of Dec. 31, 2013. The ABL facility matures in December 2017 and is subject to springing maturities (with the earliest springing date starting in October 2015).

Fitch expects Clear Channel will continue to explore asset sales (including monetization of repurchased and outstanding notes) and debt-funded dividends from Clear Channel Worldwide Holdings, Inc. (CCWH) to support Clear Channel's liquidity. Fitch estimates that CCWH could issue approximately $500 million-$550 million in order to fund a dividend to its equity holders. Fitch's estimates are based on CCWH's consolidated leverage ratio of 6.3x as of Dec. 31, 2013 and maximizing CCWH's 7.0x incurrence limitation. Net proceeds to Clear Channel would be approximately $444 million-$488 million.

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