Outdoor advertising firm Clear Channel Worldwide Holdings took a big step towards a firmer financial footing on Wednesday, pricing a US$2.235bn high-yield bond as it emerges from the bankruptcy of parent company iHeartMedia.
Clear Channel is refinancing US$2.2bn of 7.625% series A and B senior subordinated notes due March 2020 before they become current liabilities.
The firm priced a US$2.235bn five-year non-call two senior subordinated note on Thursday morning, with Deutsche Bank left lead on the transaction. The deal was upsized from an initial US$2.2bn.
The deal is the company’s first step in addressing the heavy debt load it built up following parent company iHeartMedia’s 2008 leveraged buyout, which ended in bankruptcy last year.
The new debt is more expensive - the firm will pay a 9.25% coupon on the notes, tightened in from initial whispers of 10% area. The deal is rated Caa1/CCC+/CCC+ by Moody’s, S&P and Fitch.
“I think the price talk on the new issue is reflective of the risks in the profile of the company,” Patrice Cucinello, director, corporates at Fitch Ratings told IFR.
The company is highly leveraged - Fitch and Moody’s estimate the firm’s debt to Ebitda ratio at around nine times while S&P estimates it around eight times.
“It’s overleveraged - but you’re getting paid with something that starts with a nine,” said a syndicate banker working on the deal. “There aren’t a lot of good media assets out there.”
The price progression and upsizing of the deal showed that investors have been receptive of risky assets - and that the issuance of Dun & Bradstreet’s triple C rated unsecured bond last week may have set the stage for others to follow, according to another syndicate banker on the deal.
Still, Clear Channel came with a particular credit story.
The outdoor advertising company is due to separate from iHeart when the parent company, the largest terrestrial radio broadcaster in the US, emerges from bankruptcy, which is expected in the first half of this year.
A brand new board of directors was put in place this week, which investors also had to consider, according to one buyer looking at the deal.
It also includes some rare features, which the issuer has worked in to increase its ability to refinance and repay the debt.
The terms include a special redemption feature that allows the prepayment of up to 20% of the notes at any time over the next two years at 103 using the proceeds from certain equity offerings.
The bonds may also step up in ranking to become senior obligations, if none of the firm’s 2022 senior notes remain outstanding and no event of default has occurred. Analysts at Xtract Research said the company could avoid doing this and cautioned investors who may be enticed by the feature.
DEFAULT IN 2018
iHeartMedia was saddled with a large amount of debt in 2008 when it was acquired by Bain Capital and Thomas H. Lee Partners in a US$17.9bn leveraged buyout.
iHeartMedia struggled to service the debt as it tackled a secular decline in the radio broadcasting industry.
The eventual bankruptcy of iHeart in March last year was the biggest in the sub-investment grade corporate debt market last year according to Fitch, with around US$9.4bn of high yield bonds and US$6.3bn in leveraged loans affected.
Clear Channel’s credit profile suffered because of the debt burden of the parent’s leveraged buyout, according to S&P, with the company taking on additional debt to finance dividends to iHeartMedia to help the parent tackle “dire liquidity needs”.
The refinancing effort may help put Clear Channel on firmer footing, despite the high yield. The company is also expected to look to asset sales and cost reductions to improve its leverage ratio.
“At price talk around 10% (the interest cost) will weigh on the performance of the company – they’re already struggling to generate free cashflow – but the repayment features provide them optionality to pay down the debt,” said Cucinello.
“I think separating will allow the company able to operate more efficiently and focus on its credit profile, which has weakened because of iHeart’s financial woes.”