(Reuters) – Moody’s Investors Service on Monday cut its ratings on Clear Channel Communications to a deeply speculative grade and warned the company may be likely to breach terms in its bank loans this year and seek to restructure its debt.
Moody’s cut Clear Channel’s corporate family rating four notches to “Caa3,” nine steps below investment grade, from “B2.” The outlook is negative, indicating a further downgrade may be more likely over the next 12 to 18 months.
Clear Channel is likely to breach a covenant that requires its secured leverage, a measure of debt to earnings before interest, taxes, depreciation and amortization, to stay at or under 9.5 times, Moody’s said.
Clear Channel, the largest U.S. company, by revenue, in both radio and outdoor advertising, is struggling with its debt load after being bought last July in a $17.9 billion takeover by private equity funds Thomas H. Lee Partners THL.UL and Bain Capital.
Moody’s raised its assumptions in February for revenue and earnings declines in the broadcasting industry in 2009, leading the rating agency to now believe Clear Channel will trip its covenants this year.
“With a capital structure that was highly speculative from its inception, the company’s ability to continue as a going concern is completely dependent upon remaining in compliance with its covenants,” Moody’s said in a statement.
“But in the current economic environment, compliance will be very challenging, and as a result, such a capital structure will not likely be sustainable,” the rating agency added.
Credit default swaps insuring Clear Channel’s debt against default are trading at a deeply speculative level of 83 percent, or $8.3 million to insure $10 million for five years, in addition to annual payments of $500,000.
(Reporting by Karen Brettell; Editing by James Dalgleish)