Clear Channel Worldwide Holdings, Inc. -- Moody's affirms Clear Channel 's B3 CFR and assigns B2 rating to affiliate's proposed senior secured note; outlook negative

Rating Action: Moody's affirms Clear Channel 's B3 CFR and assigns B2 rating to affiliate's proposed senior secured note; outlook negative

Global Credit Research - 21 Jul 2020

New York, July 21, 2020 -- Moody's Investors Service, ("Moody's") affirmed Clear Channel Outdoor Holdings, Inc's (Clear Channel) B3 Corporate Family Rating (CFR) and assigned a B2 rating to the proposed senior secured note of affiliate, Clear Channel International B.V. (CCIBV). Clear Channel's existing senior secured credit facility and senior secured notes were affirmed at B1 while the senior unsecured notes issued by affiliate, Clear Channel Worldwide Holdings, Inc (CCW), were affirmed at Caa2. The outlook remains negative.

The net proceeds of the $350 million senior secured note due 2025 issued by CCIBV will be used to repay a $54.9 million promissory note and add cash to the balance sheet. The new notes will be secured by some of the international assets, but will not have a claim against the high margin North American assets or be guaranteed by Clear Channel. The transaction increases Clear Channel's pro forma cash balance to approximately $885 million, but pro forma leverage will increase to 10.9x from 10.2x as of Q1 2020 (excluding Moody's standard lease adjustments). Moody's expects leverage will increase substantially in the near term due to the impact of the coronavirus outbreak on outdoor advertising revenue and discretionary consumer spending, which will substantially reduce revenue and profitability in 2020. Despite elevated leverage levels and negative free cash flow, liquidity, aided by the addition of cash from the new offering, is projected to be adequate over the next year and the Speculative Grade Liquidity (SGL) rating remains unchanged at SGL-3.

Affirmations:

..Issuer: Clear Channel Outdoor Holdings, Inc.

.... Corporate Family Rating, Affirmed B3

.... Probability of Default Rating, Affirmed B3-PD

....Senior Secured Bank Credit Facility, Affirmed B1 (LGD3) from (LGD2)

....Senior Secured Regular Bond/Debenture, Affirmed B1 (LGD3) from (LGD2)

..Issuer: Clear Channel Worldwide Holdings, Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa2 (LGD5)

Assignments:

..Issuer: Clear Channel International B.V.

....Senior Secured Regular Bond/Debenture, Assigned B2 (LGD3)

Outlook Actions:

..Issuer: Clear Channel International B.V.

....Outlook, Assigned Negative

..Issuer: Clear Channel Outdoor Holdings, Inc.

....Outlook, Remains Negative

..Issuer: Clear Channel Worldwide Holdings, Inc.

....Outlook, Changed To Negative From No Outlook

RATINGS RATIONALE

Clear Channel's B3 CFR reflects the ongoing impact of the coronavirus outbreak on the global economy and outdoor advertising spending which will lead to substantially higher leverage and decreased operating cash flow. Moody's expects Clear Channel's lower margin European business, which includes street furniture and transit contracts, to decline substantially in the near term as a result of the pandemic. While Clear Channel has diversified operations primarily in the U.S. and Europe, there is significant exposure to larger markets which are more likely to be adversely impacted by the coronavirus and elevate declines in operating performance in both divisions in the near term. The outdoor advertising industry also remains vulnerable to reduced consumer ad spending, with contract terms generally shorter than in prior periods. As result, Moody's expects the outdoor industry will be affected more rapidly than in prior recessions.

Clear Channel benefits from its market position as one of the largest outdoor advertising companies in the world with diversified international operations. The ability to convert traditional static billboards to digital provides growth opportunities which Moody's expects will lead to higher revenue and EBITDA with appeal to a broader range of advertisers after the pandemic subsides. Outdoor advertising is not likely to suffer from disintermediation as other traditional media outlets have and will benefit from restrictions of the supply of additional billboards (particularly in the US), which helps support advertising rates and high asset valuations.

Clear Channel's pro forma leverage is very high at 10.9x (excluding Moody's standard lease adjustment) as of Q1 2020 and Moody's expects leverage will increase significantly in the near term as a result of the pandemic. Expense and capex reductions are projected to offset only a portion of the economic recession on profitability and cash flow. Clear Channel completed the sale of its ownership position in Clear Media for $223 million in net proceeds in Q2 2020 which will be reinvested into the business and help support liquidity during the pandemic.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The credit profile reflects the impact on Clear Channel of the deterioration in credit quality the pandemic has triggered, given the company's exposure to advertising spending. This has left the company vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

A governance impact that Moody's considers in Clear Channel's credit profile is the change in financial policy. Prior to the separation with iHeartCommunications, Inc. (iHeart) in Q2 2019, Clear Channel paid material dividends to its prior parent company that led to reduced free cash flow and high leverage levels. Moody's expects that Clear Channel will pursue a more conservative policy after the impact of the pandemic starts to abate, but will be focused on preserving liquidity in the near term.

The speculative grade liquidity (SGL) rating of SGL-3 reflects Moody's expectation that Clear Channel will maintain adequate liquidity in the near term. Pro forma cash on the balance sheet will be approximately $885 million with access to a $175 million revolver due 2024 with $150 million drawn ($20mm of L/Cs outstanding) as well as an $125 million receivables based facility due 2024 as of Q1 2020. Liquidity benefited from the sale of the company's position in Clear Media which provided $223 million in net cash proceeds in Q2 2020. Free cash flow (FCF) has been slightly negative in recent periods and Moody's expects that FCF will be decline substantially in 2020. The decrease will occur despite efforts to cut capex below $110 million in 2020 from $221 million in 2019 and plans to reduce expenses by $100 million in Q2. Additional sales of non-core assets are possible going forward, especially outside of North America, which could provide an additional source of liquidity.

The term loan is covenant lite and the revolver is subject to a first lien net leverage ratio of 7.6x if the balance of the revolver is greater than $0 and undrawn letters of credit exceed $10 million. If the total leverage ratio is equal to or less than 6.5x, the revolver will only be subject to the first lien net leverage ratio when greater than 35% is drawn. Clear Channel executed an amendment in June 2020 that suspends the springing covenant until Q3 2021, but subjects the company to a minimum liquidity test of $150 million during the suspension period.

The negative outlook reflects Moody's expectation of significant declines in revenue and EBITDA as a result of the economic recession driven by the pandemic which will lead to substantially higher leverage levels and negative free cash flow in 2020. The European business that has a higher percentage of lower margin street furniture and transit revenue located in large markets, is likely to be especially hard hit in the near term and take longer to recover than its higher margin US operations. Moody's projects Clear Channel will have adequate liquidity, although additional sources of liquidity may be needed if the coronavirus impacts the industry for a prolonged period of time. Moody's projects leverage levels will improve to the mid 12x range by the end of 2021 and to under 11x by the end of 2022 as advertising spend improves after the impact of the pandemic subsides. Moody's also projects free cash flow will remain negative until 2022 and that Clear Channel will be reliant on its cash balance for liquidity.

The senior secured notes issued at CCIBV were rated B2, one level lower than the secured debt issued at parent company, Clear Channel, reflecting CCIBV's security in only a portion of the international assets with no claim against the higher margin North American assets and the lack of guarantees from Clear Channel. The B2 rating on the CCIBV notes reflects a one level override lower to Moody's Loss Given Default (LGD) methodology as a result of the differences in security and guarantees. The senior unsecured notes issued at affiliate CCW are rated Caa2, two notches below the B3 CFR given the substantial amount of secured debt in the capital structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade is not expected in the near term for Clear Channel due to the impact of the pandemic and very high leverage levels. However, an upgrade could occur if leverage decreased below 7x with a positive free cash flow to debt ratio in the mid-single digits and an EBITDA minus capex to interest coverage ratio of over 1.5x. An adequate liquidity profile with a sufficient cushion of compliance with financial covenants would also be required.

The ratings could be downgraded if leverage exceeds 10x for an extended period of time once the pandemic subsides or if the liquidity position deteriorated such that there was an increased possibility of default or a distressed exchange. An EBITDA minus capex to interest coverage ratio sustained below 1x or inability to obtain an amendment on its financial covenant applicable to its revolver if needed in the future would also lead to a downgrade.

Clear Channel Outdoor Holdings, Inc. (CCO), headquartered in San Antonio, Texas, is a leading global outdoor advertising company that generates LTM revenues of approximately $2.7 billion as of Q1 2020. iHeartCommunications, Inc. (iHeart) previously owned 89% of CCO and former iHeart debtholders own a material portion of CCO's equity following iHeart's exit from bankruptcy in Q2 2019.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Scott Van den Bosch VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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