Clear Channel Worldwide Holdings Inc. Proposed $2.2 Billion Subordinated Notes Rated 'CCC+' (Recovery Rating: '4')

CHICAGO (S&P Global Ratings) Feb. 4, 2019--S&P Global Ratings today assigned 
its 'CCC+' issue-level rating and '4' recovery rating to outdoor advertiser 
Clear Channel Outdoor Holdings Inc.'s (CCOH) proposed $2.2 billion senior 
subordinated notes due in 2024. The '4' recovery rating indicates our 
expectation for average recovery (30%-50%; rounded estimate: 40%) of principal 
for lenders in the event of a payment default. Clear Channel Worldwide 
Holdings Inc., the company's wholly owned subsidiary, is issuing the notes. 

The new subordinated notes will be used to refinance the company's $2.2 
billion of outstanding senior subordinated notes that mature on March 15, 
2020. While the proposed refinancing will extend the company's most immediate 
maturities, CCOH will continue to have a significant debt burden of more than 
$5 billion, with elevated leverage of about 8x. Further, we expect the 
proposed subordinated notes will carry a higher interest rate that will add 
between $30 million and $55 million of annual interest expense to an already 
onerous obligation. We expect the company will continue to generate negative 
free operating cash flow in 2019, such that we believe the most likely path to 
deleveraging is through debt repayment from asset sales.

The transaction does not affect our 'CCC+' issuer credit rating since the 
transaction is leverage neutral. The developing outlook reflects that we could 
lower, affirm, or raise our ratings on CCOH depending on the company's ability 
to improve cash flow and materially reduce leverage following its separation 
from iHeartMedia Inc., which appears likely in the second quarter of 2019. 


ISSUE RATINGS - RECOVERY ANALYSIS

Key analytical factors
  • After the proposed refinancing, CCOH's debt capitalization will consist of a $125 million asset-based revolving credit facility due in 2023, $375 million senior unsecured notes due in December 2020, $2.725 billion of senior unsecured notes due in 2022, and $2.2 billion senior subordinated notes due in 2024.
  • Clear Channel Worldwide is the issuer of the company's senior unsecured notes due in 2022 and new senior subordinated notes due in 2024, and Clear Channel International B.V. is the issuer of the senior unsecured notes due in 2020. Clear Channel International's notes are structurally senior to Clear Channel Worldwide's debt up to the value of its guarantees, and Clear Channel Worldwide's senior unsecured notes are contractually senior to the subordinated notes.
  • The value available to potential senior unsecured debt claims exceeds the unsecured debt claims in our default scenario. However, we cap the recovery rating on the company's unsecured debt at '2', indicating meaningful (70%-90%; rounded estimate: 85%) recovery. The recovery ratings cap on the unsecured debt reflects the risk of impairment in recovery due to potential changes to size and ranking of debt and nondebt claims before our hypothetical default.
Simulated default assumptions
  • Our simulated default scenario contemplates a default in 2020 due to the company's difficulty refinancing its December 2020 debt maturity.
  • Other default assumptions include a 60% draw on the asset-based revolving credit facility, LIBOR is 2.5%, and all debt includes six months of prepetition interest.
Simplified waterfall
  • EBITDA at emergence: About $583 million
  • EBITDA multiple: 7.5x
  • Gross recovery value: About $4.36 billion
  • Net enterprise value (after bankruptcy and administrative costs and priority asset-based lending claims): About $4.14 billion
  • Obligor/nonobligor split: 70%/30%
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  • Senior unsecured debt (including the international debt): About $3.2 billion
  • --Recovery expectations: 70%-90% (reflects ratings cap; rounded estimate: 85%)
  • Subordinated claims: about $2.3 billion
  • --Recovery expectations: 30%-50% (rounded estimate: 40%)