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Clear Channel Outdoor Holdings, which is 89% owned by Clear Channel which in turn is largely owned by Bain Capital LLC has been sued by the City of Pinellas Park Firefighters Pension Board, according to Reuters.  They are upset over a sweetheart loan made by Clear Channel Outdoor Holdings to Clear Channel.

The board of Clear Channel Outdoor Holdings Inc was sued Thursday by an investor seeking to rescind what it called an improper $656 million loan that the billboard advertising company made to its ailing parent.

The loan has "so significantly" depleted Clear Channel Outdoor's cash reserves that the company was forced to borrow $2 billion to fund a special dividend, according to the lawsuit filed in Delaware's Chancery Court.

Bain Capital LLC and Thomas H Lee Partners LLC purchased Clear Channel for $18 billion in 2008, just in time for the stock market crash.  According to the Wall Street Journal's blog, the lawsuit claims:
“No rational third-party would have ever agreed to lend money on such terms,” says the suit, which was filed in the Delaware Court of Chancery late Wednesday. “Not only could Outdoor earn twice as much interest on the loan if it charged [Clear Channel Communications] a commercially reasonably interest rate, but Outdoor faces a severe risk that the unsecured loan will never be paid back because [Clear Channel Communications] has been drowning under a massive debt load.”
In summary, Clear Channel Outdoors gave a sweetheart loan of $656 million to its majority stockholder and parent;  the suit alleges that had anybody been mad enough to loan Clear Channel money, the lender would pay twice the interest.  The lawsuit allegeds that making this sweetheart loan forced Clear Channel Outdoors to take out a loan for itself to pay a "special" dividend. . .to Clear Channel and Bain Capital!  

Marketwatch reports that Clear Channel Worldwide (CCWW), a division of Clear Channel Outdoors (CCO) is proposing $1.25 billion in debt -- perhaps part of the $2 billion loan that CCO had to take out to finance its loan to Clear Channel.  Marketwatch also notes that Clear Channel Outdoors can rescind its loan at any time, and Clear Channel would have to pay it back on demand.  With Clear Channel owning 89% of Clear Channel Outdoors, I don't think that CCO will be making such demands.

(Clear Channel owes $2.8 billion due in 2014 and $12.2 billion due in 2016.  The $1.1 billion "special dividend" going to Clear Channel will reduce the 2014 debt to $1.7 billion, according to Marketwatch.  Also, Clear Channel will probably have to ask its lenders to extend their 2016 loans.)

On February 8, according to FMQB (a radio industry site) Fitch gave Clear Channel Communications a rating of CCC (stable) and the subsidiary got a rating of B.  

Marketwatch reports that unsecured loans to Clear Channel were rated C/RR6, below which lies restricted default.  The C indicates that "default is imminent or inevitable, or the issuer is in standstill." RR6 indicates that the expected recovery on such a loan, should Clear Channel default, is 0% to 10%.  The next step down is RD (restricted default; the concern is not officially bankrupt but is missing payments and engaging in "distressed debt" deals.)  Then comes the dreaded D, for default.

Senior secured loans are rated CCC/RR4, for "substantial credit risk" and characteristics akin to a 31%-50% recovery in the case of default.    

The B rating is assigned to "highly speculative" bonds which will likely be repaid.  BB, the next step up, is the highest class of "junk bonds".  

Fitch rating system


When will Clear Channel go under?

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