iHeartMedia debt unsustainable: S&P

IHeartMedia Inc faces an unsustainable capital structure after the radio and display advertising company backed by Thomas H Lee Partners and Bain Capital missed a payment on notes but offered an exchange deal on other debt, according to S&P Global Ratings.

The San Antonio, Texas, company’s debt now trades at “significant discounts to par” of 25 percent to 50 percent, a Dec. 21 research update from the firm says.

On the heels of the debt-swap plan, S&P upgraded iHeartMedia’s corporate rating to CC from SD. The CC rating means the company’s debt is highly vulnerable; default has not yet occurred but is expected to be a virtual certainty, according to S&P’s definitions.

“We would view the proposed debt exchange transaction, if completed, as tantamount to a default, based on our criteria,” S&P analyst Jeanne Shoesmith said in the research note. “Noteholders who accept the exchange would be extending maturity by a little over three years and accepting securities that are equivalent to notes currently trading roughly 25 percent below par.”

The rating firm plans to lower the corporate credit rating to SD and a rating on senior notes to D on completion of the exchange offer. SD means selective default and D means default, according to S&P definitions.

The company listed $12.8 billion in assets and $20.3 billion of long-term debt as of Sept. 30, according to a filing.

For the three months ended Sept. 30, iHeartMedia posted revenue of $1.57 billion, operating income of $299 million, and a net loss of $35 million. For the year-earlier period, revenue wa $1.58 billion, operating income was $267.1 million and the net loss was $222 million.

Thomas H Lee Partners and Bain Capital Partners purchased Clear Channel Communications, the predecessor of iHeartMedia, in 2006 for $26.7 billion, including $8 billion of debt.

In 2014, Clear Channel changed its name to iHeartMedia, which remains a portfolio company listed on the websites of both private equity firms.

Spokesmen for Bain Capital and TH Lee did not respond to an email.

Action Item: iHeartMedia’s investor page: www.iheartmedia.com/Investors/Pages/default.aspx#CCMH

Singer Rihanna performs with dancers during the 2012 iHeart Radio Music Festival at the MGM Grand Garden Arena in Las Vegas on Sept. 21, 2012. Photo courtesy Reuters/Steve Marcus