NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'B+/RR3' rating to Clear Channel Worldwide Holdings, Inc.'s (CCWW) proposed $1.25 billion senior subordinated eight-year notes maturing 2020. Fitch expects CCWW will use the proceeds to ultimately fund a dividend to the shareholders of Clear Channel Outdoor Holdings, Inc. (CCOH), which is 89% owned by Clear Channel Communications, Inc. (Clear Channel). Clear Channel will in turn use its portion of the proceeds (approximately $1.1 billion) to reduce secured debt. The Outlook on all ratings is Stable. Please see a full list of ratings at the end of this release.
CCWW is expected to use the proceeds to make a loan, net of underwriting fees, of $1.23 billion to its parent Clear Channel Outdoor, Inc. (CCO), which in turn will make a special cash dividend of the loan proceeds to its direct parent CCOH. CCOH is 89% owned by Clear Channel Holdings, Inc. (CCH) (88.5% directly, and .4% via CCH's subsidiary CC Finco, which purchased the shares on the open market during 2011 under Clear Channel's share repurchase program), and 11% by a public stake. CCH is 100% owned by Clear Channel. CCWW is a holding company that owns the international operations of CCOH.
The notes will be guaranteed by the same entities that guarantee CCWW's 2017 unsecured notes - CCOH, CCO, and certain of CCOH domestic subsidiaries that house the majority of the company's domestic outdoor operations. The international operations are not part of the guarantee. The guarantee will be junior to the guarantee on the unsecured notes. The notes will be callable beginning 2015.
CCWW will issue two tranches of notes in a single transaction under separate indentures: $250 million Series A and $1 billion Series B. The Series B notes are subject to certain more restrictive covenants (limitations on asset sales, limitation on restricted payments, limitations on restricted subsidiaries) to which CCWW will be bound as long as the series B notes are outstanding.
Upon the occurrence of a change of control, CCWW will be required to make an offer to repurchase the bonds at 101%. A change of control occurs in the event of i) CCWW is no longer a wholly-owned subsidiary of CCOH; ii) CCOH becomes a wholly owned subsidiary of Clear Channel; iii) a sale of all or substantially all of CCOH assets to persons other than a Permitted Holder (private equity owners, management, Clear Channel); iv) the acquisition of a majority of the voting stock of CCOH by persons other than Permitted Holders; iv) certain changes to the Board of Directors.
Several of the covenants governing the subordinated notes are more flexible than those governing CCWW's existing 2017 unsecured notes. The notes provide a restricted payments basket of 50% of consolidated net income beginning April 1, 2012, plus cash proceeds from equity sales, equity contributions, and asset sales. Other carve-outs include a one-time $500 million dividend and debt-funded dividends assuming total leverage remains below 7.0 times (x). The company is also subject to a 7.0x total leverage test for incremental debt and debt-funded dividends (the unsecured indenture is 6.5x total leverage for incremental debt and 6.0x total leverage for debt-funded dividends). However, the unsecured restrictions are in place while those notes remain outstanding. The unsecured notes are callable beginning December 2012.
The transaction is in-line with Fitch's expectations. The ratings on CCWW incorporated Fitch's expectations that leverage would migrate towards 6x, and increased interest expense would reduce its free cash flow, as Clear Channel sought to extract cash from this entity via debt-funded dividends. Fitch estimates that total leverage at CCOH will increase from the current 3.2x to 4.7x (under the leverage as defined under the bond indenture; Fitch estimates that total leverage is 3.5x, growing to 5.2x). Fitch estimates that there is currently approximately $1 billion of additional debt-funded dividend capacity, in addition to a one-time $500 million cash dividend, available from CCOH.
Clear Channel will use the $1.1 billion dividend it receives to permanently repay a portion of the $1.33 billion outstanding under its revolving credit fund (RCF) maturing 2014. Pro forma for the repayment, Fitch estimates approximately $231 million outstanding under the RCF, and $602 million availability (less any letters of credit [LOCs] outstanding). Fitch estimates that the transaction will reduce gross secured leverage at Clear Channel by 0.6x, to 7.3x, from 7.9x at Dec. 31, 2011. Total consolidated leverage (which includes CCWW) will increase 0.1x, to 11.1x.
The transaction has no impact on Clear Channel's ratings or recovery analysis, which had previously incorporated maximum debt-funded dividends out of CCOH. Nonetheless, the transaction is a positive for Clear Channel's near-term liquidity, as it will reduce the 2014 maturity wall to $1.7 billion from $2.8 billion. The ratings had previously incorporated Fitch's view that the company's financial flexibility around 2014 maturities had improved over the past year. While a maturity extension on 2014 bank debt will provide the company with increased financial flexibility to deal with subsequent maturities, Fitch believes Clear Channel could likely handle the $2.4 billion of combined legacy notes and bank debt that mature 2012-2014 using a combination of cash swept from CCOH that is held in Clear Channel's accounts, further dividends from CCOH, and issuance out of Clear Channel.
That being said, Clear Channel still faces $12.2 billion of debt (primarily bank loans) maturing in 2016. Addressing this will require flexibility on the part of 2016 term-loan holders by way of maturity extension, which Fitch believes will depend on Clear Channel's ability to reduce secured leverage to a level where lenders would be willing to recommit capital.
At Dec. 31, 2011, Clear Channel had $686 million of cash, excluding $543 million of cash held at CCOH. This cash includes $656 million of CCOH funds swept to Clear Channel for cash management purposes. Clear Channel can access these funds and use them at its discretion, although they are due to CCOH on demand. Even absent this cash, Clear Channel has adequate backup liquidity, including $602 million availability under its RCF (less any LOCs) and an undrawn asset-based lending (ABL) facility (subject to an undisclosed borrowing base; $321 million outstanding at first quarter 2011, the last reported date before the facility was repaid). Any FCF comes from CCOH; although a portion would be swept to Clear Channel, this entity does not currently generate cash on its own.
The ratings at CCOH incorporate Fitch's favorable outlook on the outdoor industry and CCOH's position within it. The ratings also consider Fitch's expectations that total leverage is likely to migrate towards 6x over the next several years as CCU seeks to maximize its cash from the subsidiary. The ratings also incorporate the legal provisions that separate the two entities and protect the subsidiary, including dividend restrictions, lack of guarantee, and CCOH protection from a CCU default. However, there are strong operational ties to the weaker parent, including centralized treasury and senior management overlap. Additionally, the parent can pull cash out of the sub (with restrictions), which it will rely on to service a portion of its debt.
Pro forma for the transaction, there is approximately $3.8 billion of debt at CCWW, consisting primarily of:
--$500 million series A senior unsecured notes, maturing December 2017;
--$2 billion series B senior unsecured notes, maturing December 2017;
--$1.25 billion of the proposed subordinated notes.
CCOH's Recovery Ratings reflect Fitch's expectation that enterprise value would be maximized as a going concern. Fitch stresses outdoor EBITDA by 30%, to approximately the level where the company could not cover its fixed charges (pro forma for the new issuance), and applies a 7x valuation multiple. Fitch estimates the enterprise value would be $2.7 billion. This indicates 100% recovery for the unsecured notes; however, Fitch notches the debt up only two notches from the Issuer Default Rating (IDR) given the unsecured nature of the debt. In Fitch's analysis the proposed subordinated notes recover 53%, indicating 'RR3', or one notch up from the IDR.
For more details please see Fitch's press release 'Fitch Affirms Clear Channel's Ratings; Outlook Stable' dated Feb. 7, 2012.
Fitch currently rates Clear Channel and CCWW as follows:
Clear Channel
--Long-term IDR at 'CCC';
--Senior secured term loans and senior secured revolving credit facility (RCF) at 'CCC/RR4';
--Senior unsecured leveraged buyout (LBO) notes at 'C/RR6';
--Senior unsecured legacy notes at 'C/RR6'.
CCWW
--Long-Term IDR at 'B';
--Senior unsecured notes at 'BB-/RR2'.
Fitch has assigned the following rating to CCWW:
--Senior subordinated notes at 'B+/RR3'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Clear Channel Comm. Inc: The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 12, 2011;
--'Parent and Subsidiary Ratings Linkage' Aug. 12, 2011;
--'Distressed Debt Exchange Criteria' Aug. 12, 2011;
--Evaluating Corporate Governance Dec. 13, 2011
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' May 12, 2011.
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628489
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657143
Distressed Debt Exchange Criteria for Structured Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646669
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