United States, July 26, 2019 – Clear Channel Outdoor Holdings, Inc.’s (CCO) $350 million equity offering on 25 July is credit positive because we expect that the company will use the net proceeds to repay $333.5 million of subsidiary Clear Channel Worldwide Holdings, Inc.’s (CCW, B3 stable) 9.25% senior subordinated notes due in 2024 or $383.7 million if the underwriters exercise their option to purchase additional shares. However, we expect that pro forma leverage levels will remain high at 8.5x, although down from 9.1x as of first-quarter 2019 (excluding our lease adjustments). Interest expense is projected to decrease by approximately $31 million and result in a slight improvement in interest coverage to 1.6x from 1.5x as of first-quarter 2019.
CCW’s pro forma EBITDA minus capex to interest coverage ratio will remain weak at 1x and up slightly from 0.9x as of first-quarter 2019. Free cash flow has been negative over the past several years including $80 million of negative free cash flow as of the last 12 months to first-quarter 2019 and will still be negative pro forma for the transaction at negative $50 million following the $31 million in interest expense savings.
CCW is expected to benefit from the elimination of the trademark license expense ($38.7 million in 2018) and the positive trends for the outdoor industry in North America, Latin America, and Europe, but faces more challenging trends with its joint venture in China. We also note that although CCW’s debt is denominated in US dollars, a substantial part of its business is in international currencies that can negatively affect results if the currencies that it does business in decline relative to the dollar. While leverage is modestly improved from the transaction, it still remains very high and leaves the company vulnerable to economic declines in the global economy.
The equity offering also provides clarity on the strategy for CCO following the separation from iHeartCommunications, Inc. (B2 stable). The new owners of the company are expected to try to grow the business instead of selling off all or parts of the business in the near term, as can be the case when former debtholders become equity holders. While CCO may consider attractive offers for select assets, we do not expect large-scale transactions that would lead to a substantial change in the portfolio of assets. Over the longer term, the strategy has the potential to change because many of the former debtholders are not naturally long-term strategic equity investors and may seek to exit their equity position in time.
CCW is an intermediate holding company that houses the assets of the international outdoor advertising operating segment of CCO. Headquartered in San Antonio, CCO is a leading global outdoor advertising company that generated last-12-month revenue of approximately $2.7 billion as of first-quarter 2019. Following the exit of former parent iHeartCommunications’ bankruptcy process, former iHeart debtholders owned 89% of CCO’s equity.
Credit Outlook: 29 July 2019. Pg. 6
Moodys
Atlantic Investors Service 