iHM Gets Negative Credit Rating

The credit ratings company Fitch Ratings has issued a catalog of gloomy comments about iHeartMeida, starting with the phrase “highly-leveraged.”

Fitch Ratings has affirmed the Issuer Default Rating (IDR) of iHeartCommunications, Inc.  iHeart's Rating Outlook remains Negative, while CCWW's remains Stable.

According to Fitch, approximately $20.7 billion of debt outstanding as of Sept. 30, 2014, including $4.9 billion issued by CCWW is affected by Fitch's action.

Fitch reports the key ratings drivers are:

• The ratings reflect iHeart's highly leveraged capital structure. Fitch estimates current total and secured leverage of 11.7x and 7.2x, respectively as of the LTM period ended Sept. 30, 2014. Total leverage exceeds levels at the leveraged buyout, as a weak operating profile has limited EBITDA growth and free cash flow (FCF) generation. EBITDA has not returned to pre-downturn levels.
• The ratings and Negative Outlook reflect the limited tolerance for further erosion of iHeart's operating profile and precarious liquidity position.
• Fitch recognizes that the company completed a series of capital market transactions which have extended a material amount of its secured maturities to 2019 and beyond providing much needed financial flexibility.
• Fitch expects iHeart's FCF to be negative over the next two years reflecting the interest burden associated with the company's capital structure and operating profile.

Overall Fitch's ratings reflect the company's highly leveraged capital structure, tenuous liquidity position with significant scheduled maturities in 2016 and Fitch's expectation that the company's considerable and growing interest burden will hinder near-term FCF generation. Additionally the company's operating profile is subject to ongoing technological threats and secular pressures in radio broadcasting and exposure to cyclical advertising revenue. The ratings are supported by the company's leading position in both the outdoor and radio industries, as well as the positive fundamentals and digital opportunities in the outdoor advertising space.

On the postive side, Fitch believes iHeart is strongly positioned within a secularly challenged radio sector. Fitch believe that iHeart's scale, dominant market presence, especially in desirable DMAs, and established content and strong on-air personality roster shields iHeart in the short-term from recent declines experienced by other radio broadcasters. iHeart is shifting towards a media centric and multi-distribution platform strategy to address the on-going fragmentation in the radio space.

However, its limited financial flexibility may deter or delay these efforts and jeopardize operations in the digital era.