* Media giant tackles 2016 debt maturity wall
* Investors offer breathing space in exchange for 10% yield
* More work to do on US$21bn debt pile
By Mariana Santibanez
NEW YORK, May 2 (IFR) - Clear Channel Communications made the most of the frothy high-yield market this week, printing a new deal to chip away at its 2016 maturity wall, which analysts last year thought could lead to a default.
While the US media giant paid a price for the US$850m trade - a 10% coupon on just a 3.75-year maturity - it succeeded in convincing investors it will be able to navigate the road ahead.
"The due debt in 2016 is meaningful, but it is significantly lower than it was, say, 12 to 18 months ago," said Mitch Reznick, co-head of credit at Hermes Fund Managers.
Proceeds from the new trade will refinance its 5.5% US$408.6m senior notes maturing in 2014 and 4.9% US$241m senior bonds maturing in 2015.
While the company still has almost US$21bn of debt it needs to reduce after the refinancing, it now has nominal short-term debt until US$1.9bn of loans matures in January 2016.
"With every transaction like this that Clear Channel completes, it increases the likelihood that it will scale the 2016 maturity wall," said CreditSights analyst Karen Klapper.
The juicy coupon was sufficient to attract nearly US$4bn in demand, according to an investor, which in turn allowed Clear Channel to upsize the deal from US$400m.
While that sort of income is appealing, many in the market said the trade's success was ultimately down to belief in the Clear Channel story.
Taken private by Bain Capital and Thomas H. Lee Partners in 2008 in a US$17.9bn deal, the company has been saddled with a heavy load of debt.
But it bolstered its liquidity position after selling its stake in Australia Radio Network in February and the sale of a portion of 14% senior notes due 2021.
And while the refinancing will increase its interest burden by US$40m-US$45m - and will clearly hurt already strained cash flows - it has around US$660m on its balance sheet.
According to CreditSights, the Clear Channel Outdoor business is also generating more than US$100m of annual free cash flow.
Reznick of Hermes said that its operating profile was stable, and that there are prospects for more one-time, cash-generating transactions.
If there were to be a bankruptcy, however, the new bonds will take a hit - something that Moody's and Fitch recognised with their respective Ca and C ratings.
The bonds were issued out of a newly formed entity - Clear Channel Communications Escrow Corp - and, like the notes being refinanced, will not be guaranteed by Clear Channel Capital or by any of Clear Channel's wholly owned subsidiaries.
Goldman Sachs was left-lead on the deal, while Credit Suisse, Citi, Morgan Stanley, Deutsche Bank and Wells Fargo were bookrunners.
WORK TO DO
The new trade priced Monday at the tight end of 10%-10.25% price talk, and offered a 300bp pickup to its existing senior notes, though it had dropped to 97.75 by Friday afternoon.
The investor said the poor performance was probably more related to existing 2014 and 2015 bondholders that bought into the new deal, and then sold them soon after.
"Part of the reason this deal got done was a bit of self-help from those existing bondholders," he said.
"If the company wasn't able to address those maturities, it would likely have to file for bankruptcy. So they have been willing to re-lend at a high rate in the hope that the company can grow into its capital structure."
Yet there is still plenty of work to do.
Among other outstandings, Clear Channel has an 11% PIK toggle note that becomes callable in August - and leverage through unsecured debt is now around 8.3 times earnings, according to CreditSights.
"At some point, investors will focus more closely on Clear Channel's operations and its cash flow deficits," said Klapper.
"Clear Channel will need to address its highly levered balance sheet by actually repaying debt, rather than just extending maturities and pushing out its maturity wall."
But others took a more benign view, comparing the company to ill-fated TXU - which, like Clear Channel itself, was taken private in the LBO boom years between 2006 and 2008.
Energy Future Holdings, as TXU is now known, filed for bankruptcy on Tuesday, just a day after Clear Channel priced its latest deal.
"It's better to push out maturities if you can. I'm sure if TXU could have extended its debt maturities, it would have," said one restructuring lawyer.
But he cautioned: "There has to be some value to support later maturities. Otherwise you are merely prolonging the inevitable." (Reporting by Mariana Santibanez; Editing by Natalie Harrison and Marc Carnegie)