CHICAGO--(BUSINESS WIRE)--Fitch Ratings' Issuer Default Ratings (IDR) of iHeartCommunications Inc. (iHeart; rated 'CCC') and Clear Channel Worldwide Holdings, Inc. (rated 'B'), are unaffected by the proposed sale of tower sites. iHeart's announcement that one of its indirect parent's (iHeartMedia Inc.) subsidiaries has entered into an agreement to sell 411 of broadcast communication tower sites and related assets for up to $400 million to Vertical Bridge is in line with Fitch's expectation that the company will utilize several levers at its disposal to support its liquidity position. Fitch recognizes that the towers are non-core assets within iHeart's business model and opines that the transaction does not affect iHeart's operational profile materially. The 'CCC' IDR and Negative Rating Outlook remain unchanged. A full list of ratings follows at the end of this release. The proceeds are expected to be utilized for general corporate purposes.
iHeart is expected to enter into a lease agreement concurrently with the closing of the transaction. The transaction is expected to decrease top-line sales from tenants per annum by approximately $11.6 million and increase annual leases by $22.7 million offset by reduction in operating expenses of $3.8 million. The transaction is expected to close in the first quarter of 2015 (1Q'15) subject to certain conditions. Tower sale follows a similar transaction in February in which iHeart sold its 50% stake in Australian Radio Network (ARN) to APN News & Media Limited for approximately $220 million in net proceeds.
Fitch believes the bolstering of liquidity from the proceeds is favorable to the credit profile, despite the loss of annual sales from tenants and increase in leases, which will further pressure free cash flow (FCF). Fitch expects FCF will be negative over the next few years. Fitch notes that iHeart has runway until maturity wall of $1.2 billion comes due in 2016 and will likely rely on the access to capital and bank markets to refinance a material portion of its 2016 maturities. Fitch calculates iHeart's interest coverage ratio (EBITDA/Gross Interest Expense) at 1x as of September 2014 and leverage (Debt/EBITDA) at 11.7x with total consolidated debt of $21.2 billion (includes debt held at CC Finco LLC). The ratings and Negative Rating Outlook reflect the limited room within the credit profile to endure any material deterioration in operations.
An inability by iHeart 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 iHeart'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.
Fitch expects iHeart 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 iHeart's liquidity. Fitch estimates that CCWH could issue approximately $400 million-$450 million in order to fund a dividend to its equity holders. Fitch's estimates are based on CCWH's consolidated leverage ratio of 6.4x as of Sept. 30, 2014 and maximizing CCWH's 7.0x incurrence limitation. Net proceeds to iHeart would be approximately $356 million-$401 million.
Fitch's ratings are as follows:
--Long-term IDR at 'CCC';
--Senior secured term loans at 'CCC/RR4';
--Senior secured priority guarantee notes at 'CCC/RR4';
--Senior unsecured exchange notes due 2021 at 'CC/RR6';
--Senior unsecured notes at 'C/RR6'.
The Rating Outlook for iHeart is Negative.
Clear Channel Worldwide Holdings, Inc.
--Long-term IDR at 'B';
--Senior unsecured notes at 'BB-/RR2';
--Senior subordinated notes at 'B/RR4'.
The Rating Outlook for Clear Channel Worldwide Holdings, Inc. is Stable.
Additional information is available at 'www.fitchratings.com'.