Fitch Rates Clear Channel Worldwide Issuance 'BB-/RR2'; Downgrades Sub Notes; Outlook Stable
Fitch Ratings has assigned a 'BB-/RR2' rating to Clear Channel Worldwide Holdings, Inc.'s (CCWW) proposed $2.725 billion senior unsecured 10-year notes maturing 2022. In addition, Fitch has downgraded CCWW's subordinated notes by one notch to 'B/RR4' from 'B+/RR3', based on the higher amount of unsecured debt above these notes from the company's announced unsecured notes issuance and tender. Fitch has affirmed CCWW's 'B' Issuer Default Rating (IDR), and the 'CCC' IDR and security ratings of CCWW's parent Clear Channel Communications, Inc. (Clear Channel). A full list of ratings can be found at the end of this release.
CCWW will issue two tranches of notes in a single transaction under separate indentures: $735.75 million Series A and $1.989 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. The Series B notes cannot be redeemed without a concurrent Series A redemption. CCWW will use the proceeds to tender for the existing $2.5 billion of 2017 unsecured notes. Fitch estimates the tender will cost the company approximately $2.7 billion, including the early-tender premium.
The notes will be guaranteed by the same entities that guarantee the existing unsecured and subordinated notes -Clear Channel Outdoor Holdings, Inc. (CCOH), Clear Channel Outdoor, Inc. (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 notes will be callable beginning 2017.
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.
Although the issuance has not yet priced, Fitch expects the interest rate on the notes will be materially below the 9.25% on the existing unsecured notes, which was CCOH's first issuance in December 2009 in tighter market conditions. Fitch estimates the transaction could reduce interest expense by around $50 million.
The transaction will moderately increase leverage at CCOH. Total and senior leverage as defined by CCWW's bond indentures were 6.1x and 3.3x, respectively, at Sept. 30; Fitch estimates this transaction will cause these metrics to increase approximately 0.2x.
In line with Fitch's expectations, the issuance and tender will increase CCOH's flexibility to issue debt-funded dividends. The new notes subject CCWW to a 7.0x total leverage test and 5.0x senior leverage test for incremental debt and debt-funded dividends. The unsecured notes that are being tendered allow 6.5x total and 3.25x senior leverage for incremental debt and 6.0x total and 3.0x senior leverage for debt-funded dividends. As a result, Fitch estimates that the transaction will provide approximately $500 million of additional debt-funded dividend capacity. Importantly, the company does not immediately have this flexibility. While Clear Channel recently amended its cash flow credit facilities to allow 7.0x leverage at CCWW (from 6.5x), the outstanding asset-based lending (ABL) facility contains the 6.5x covenant. As a result, this facility will need to be amended or refinanced before CCOH can take leverage up to 7.0x. Fitch expects this to occur within the next 12 months. The ratings on CCWW incorporated Fitch's expectations that leverage would migrate towards 7x, as Clear Channel sought to extract cash from this entity via debt-funded dividends.
CCOH's Recovery Ratings reflect Fitch's expectation that enterprise value would be maximized as a going concern. Fitch stresses outdoor EBITDA by 15%, which Fitch views as a sustainable post bankruptcy EBITDA, and applies a 7x valuation multiple. Fitch estimates the enterprise value would be $3.7 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 42%, indicating 'RR4'. Prior to the announced transactions, Fitch estimated recovery in the 51%-70% range, indicating 'RR3'. Significant additional debt above these notes could result in further downgrades.
The transaction has no impact on Clear Channel's ratings or recovery analysis. Nonetheless, the transaction is a moderate positive for Clear Channel's ability to address its maturities, as it increases the amount of debt-funded dividends that CCOH will be able to issue to its parents over the medium term. In addition to the aforementioned $500 million of incremental capacity, CCOH can make a one-time $500 million cash dividend to its shareholders.
For more information on Clear Channel Communications and Clear Channel Worldwide Holdings, Inc., please see Fitch's Oct. 15 Ratings Commentary 'Fitch Affirms Clear Channel's Ratings; Outlook Stable'.
Fitch affirms Clear Channel and its subsidiaries as follows:
--Long-term IDR at 'CCC';
--Senior secured term loans and senior secured revolving credit facility (RCF) at 'CCC/RR4';
--Senior secured priority guarantee notes at 'CCC/RR4';
--Senior unsecured LBO notes at 'CC/RR6';
--Senior unsecured legacy notes at 'C/RR6'.
--Long-Term IDR at 'B';
--Senior unsecured notes at 'BB-/RR2'.
Fitch has downgraded the following rating:
--CCWW Senior subordinated notes to 'B/RR4' from 'B+/RR3'.
Additional information is available at 'www.fitchratings.com'. 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. 8, 2012);
--'Parent and Subsidiary Ratings Linkage' (Aug. 8, 2012);
--'Distressed Debt Exchange Criteria' (Aug. 8, 2012);
--'Evaluating Corporate Governance' (Dec. 13, 2011);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Evaluating Corporate Governance
Distressed Debt Exchange
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
Melissa Link, CFA
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Mike Simonton, CFA
Brian Bertsch, +1-212-908-0549