NEW YORK (Reuters) – Standard & Poor’s on Friday raised its ratings on Clear Channel Communications and gave it a positive outlook, indicating further upgrades could be on the cards, citing the planned debt sale at its advertising unit.
A unit of Clear Channel Outdoor Holdings Inc (CCO.N) plans to sell $750 million in new bonds to raise funds to refinance part of an $2.5 billion loan to Clear Channel Communications.
Clear Channel Communications’ liquidity will improve by terming out the debt to the new maturity of 2017, S&P said in a statement.
The company’s cash balance will also improve, giving it better intermediate-term liquidity to meet its covenants and repay debt maturities over the coming years, S&P said.
High leverage at the company, which was taken private last July in a $17.9 billion takeover by private equity funds Thomas H. Lee Partners [THL.UL] and Bain Capital, has raised concerns that it would breach its debt covenants.
S&P raised Clear Channel Communication’s rating one notch to CCC-plus, seven steps below investment grade and still a very distressed rating, from CCC.
The rating agency also rated Clear Channel Outdoor’s new bond sale B, five levels below investment grade.
Clear Channel Communications still faces a number of challenges, S&P said.
“Despite the improved liquidity and maturity profile, we are still concerned about the longer-term viability of the capital structure–in particular, unsecured debt maturities in 2013 and beyond, as well as the senior secured debt that begins coming due in 2014,” S&P said.
Subsequent unsecured debt sales made by Clear Channel Outdoor will need to be used to repay the senior secured debt at Clear Channel Communications, which could leave the company challenged to meet unsecured debt maturities, S&P said.
“Unsecured debt maturities beyond 2012 will have to be repaid by cash or refinanced at Clear Channel Communications, which could pose a formidable challenge depending on the overall business outlook for the company, including trends at the radio division,” the rating agency said. (Reporting by Karen Brettell; Editing by Padraic Cassidy)