Fitch Ratings has assigned a 'C/RR6' rating to CCU Escrow Corporation's
(CCU Escrow) $850 million 10% senior notes due 2018. Proceeds from the
offering, are expected to be used to fully redeem Clear Channel
Communications, Inc.'s (Clear Channel) 5.5% senior unsecured notes due
2014 ($409 million publicly outstanding), 4.9% senior unsecured notes
due 2015 ($241 million) and fees related to the offering and note
In addition, Clear Channel intends to redeem approximately $159 million
of 2014 notes held at CC Finco (an unrestricted subsidiary), with the
proceeds of the redemption to be used for general corporate purposes.
Since the notes are expected to be ultimately the obligations of Clear
Channel, and CCU Escrow is expected to merge into Clear Channel, Fitch
has not assigned an Issuer Default Rating to CCU Escrow and has notched
the issue rating off of Clear Channel's 'CCC' IDR.
The Rating Outlook for Clear Channel is Negative. A full list of rating
actions follows at the end of this release.
CCU Escrow is a new entity established for the issuance of the 10%
senior notes. At the closing of the note offering, CCU Escrow will
deposit the gross proceeds of the offering into a segregated escrow
account. Prior to Clear Channel assuming the notes, the notes will be
secured by a first-priority lien on the escrow account. The proceeds
will be released upon satisfaction of release conditions. If the
proceeds are not released on or within 60 days after the issuance of the
notes, they will be redeemed by the escrow agent at 100% of the
aggregate principal amount, using the proceeds held within the escrow
account. The material escrow release conditions include: 1) the
redemption of Clear Channel's 5.5% and 4.9% senior unsecured notes and
2) the assumptions by Clear Channel of CCU Escrow's obligation under the
new 10% notes.
Following the redemption and assumption of the 10% notes by Clear
Channel, CCU Escrow will merge into Clear Channel (Clear Channel will be
the surviving entity) and the notes will rank pari passu with the
existing senior unsecured Legacy Notes. As with the Legacy Notes, the
new notes will not be guaranteed by Clear Channel's parent or any
guarantor subsidiaries. Fitch notes that new notes will not contain the
equal and ratable clause under the existing legacy notes indenture that
could cause the existing legacy notes to become secured in the future.
The aforementioned transaction removes the 2014 and 2015 maturities.
Fitch believes the company has sufficient liquidity (including cash on
hand, monetization of repurchased and outstanding notes, and asset
sales) to meet its debt service obligations. However, the transaction
will result in increased interest cost, which Fitch estimates at
approximately $50 million. 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 does not expect a material amount of absolute debt reduction over
the next several years, given the expected FCF. Instead, Fitch expects
the company to continue to focus on extending or repaying its term loans
via issuance at Clear Channel and CCOH.
As of March 31, 2014, Clear Channel had approximately $20.7 billion in
consolidated debt. Debt held at Clear Channel was $15.8 billion and
--$8.2 billion secured term loans ($1.9 billion in 2016 and $6.3 billion
--$4.3 billion secured PGNs, maturing 2019-2021;
--$94 million senior unsecured 10.75% cash pay notes, maturing August
--$128 million senior unsecured 11%/11.75% PIK toggle notes, maturing
--$1.6 billion in senior unsecured 12% cash pay / 2% PIK notes maturing
in February 2021;
--$1.4 billion senior unsecured legacy notes, with maturities of
Debt held at Clear Channel Worldwide Holdings, Inc. (CCWH) was $4.9
billion and consisted of:
--$2.7 billion in senior unsecured 6.5% notes due in 2022;
--$2.2 billion in subordinated 7.625% notes due 2020.
At March 31, 2014, Clear Channel had $391 million of cash, excluding
$270 million of cash held at CCOH.
Backup liquidity consists of an undrawn $535 million ABL facility
(subject to an undisclosed borrowing base) that matures in December 2017
and is subject to springing maturities.
Security and Guarantees
The bank debt and PGNs are secured by the capital stock of Clear
Channel, Clear Channel's non-broadcasting assets (non-principal
property), and a second priority lien on the broadcasting receivables
that securitize the ABL facility.
The bank debt and secured notes are guaranteed on a senior basis by
Clear Channel Capital I, Inc. (holding company of Clear Channel), and by
Clear Channel's wholly owned domestic subsidiaries. The LBO Notes and
the exchange notes benefit from a guarantee from the same entities,
although it is contractually subordinated to the secured debt
guarantees. There is no guarantee from Clear Channel Outdoor Holdings,
Inc (CCOH) or its subsidiaries. The legacy notes and the new 10% notes
receive no guarantees.
Clear Channel's Recovery Ratings reflect Fitch's expectation that the
enterprise value of the company will be maximized in a restructuring
scenario (going concern), rather than a liquidation. Fitch employs a 6x
distressed enterprise value multiple reflecting the value of the
company's radio broadcasting licenses in top U.S. markets. Fitch assumes
going concern EBITDA at $840 million and that Clear Channel has
maximized the debt-funded dividends from CCOH and used the proceeds to
repay bank debt. Additionally, Fitch assumes that Clear Channel would
receive 88% of the value of a sale of CCOH after the CCOH creditors had
been repaid. Fitch estimates the adjusted distressed enterprise
valuation in restructuring to be approximately $7 billion.
The 'CCC/RR4' rating for the bank debt and secured notes reflect Fitch's
estimate for a recovery range of 31%-50%. Fitch expects no recovery for
the senior unsecured legacy notes, the new 10% senior notes, LBO notes,
and exchange notes due to their position below the secured debt in the
capital structure, and they are assigned 'RR6'. However, Fitch rates the
LBO and exchange notes 'CC' given the subordinated guarantee.
CCOH's Recovery Ratings also reflect Fitch's expectation that enterprise
value would be maximized as a going concern. Fitch stresses outdoor
EBITDA by 15%, and applies a 7x valuation multiple. Fitch estimates the
enterprise value would be $4 billion. This indicates 100% recovery for
the unsecured notes. However, Fitch notches the debt up only two notches
from the IDR given the unsecured nature of the debt. In Fitch's
analysis, the subordinated notes recover in the 31% to 50% 'RR4' range,
leading to no notching from the IDR.
Key Rating Drivers:
Fitch's ratings concerns center on the company's highly leveraged
capital structure, with significant maturities in 2016; the considerable
and growing interest burden that is expected to generate negative FCF in
the near term; technological threats and secular pressures in radio
broadcasting; and the company's 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.
Negative: An inability to extend maturities would result in a 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 DDE is probable in the near term would also
drive a downgrade.
Positive: The current Rating Outlook is Negative. As a result, Fitch's
sensitivities do not currently anticipate a rating upgrade.
Fitch has affirmed the following ratings:
--Long-term IDR at 'CCC';
--Senior secured term loans at 'CCC/RR4';
--Senior secured priority guarantee notes at 'CCC/RR4';
--Senior unsecured LBO notes and exchange notes due 2021 at 'CC/RR6';
--Senior unsecured legacy notes at 'C/RR6'.
The Rating Outlook for Clear Channel 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.
Fitch has assigned a 'C/RR6' rating to CCU Escrow's 10% senior notes.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
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