iHeartMedia touts refinancing moves, will stay opportunistic

By Paul Deckelman

New York, Feb. 19 – iHeartMedia, Inc. was active in the capital markets in 2014, refinancing most of its near-term debt and opportunistically buying back about $177 million of its outstanding bonds, although its total consolidated debt load remains north of $20.3 billion.

However, the San Antonio, Texas-based broadcasting, media and outdoor advertising company’s president and chief financial officer, Richard J. Bressler, told analysts on its Thursday conference call following the release of results for the 2014 fourth quarter and fiscal year ended Dec. 31 that “we are staying focused on maximizing the value of our business by continuing to improve our capital structure and liquidity through the capital markets and strategic transactions.”

As if to underscore that point, the company’s principal operating subsidiary, iHeartCommunications, Inc., concurrently visited the junk bond market with a quickly shopped and sharply upsized $950 million offering of eight-year secured notes, the proceeds of which are slated to be used to repay the last still-outstanding term loan borrowings due in 2016.

2014, 2015 debt gone

There was no mention of the bond deal on the conference call; in fact, it was announced by the company about the time that the early-morning call was wrapping up.

But during the call, Bressler and the company’s senior vice president and treasurer, Brian D. Coleman, outlined the moves the company had made last year, which included successfully refinancing all of its 2014 and 2015 maturities – a total of $711 million as of the beginning of 2014 consisting of $461 million of 5½% notes due later in 2014 and $250 million of 4.9% notes due 2015.

The company, then still known as Clear Channel Communications, Inc., redeemed those notes using the proceeds from an $850 million offering of 10% notes due 2018 via its CCU Escrow Corp. unit. The notes were priced at par in a quick-to-market transaction on April 28, 2014 after the issue was upsized from $400 million originally.

Besides taking out the 2014 and 2015 notes, Bressler said, the company refinanced nearly $1 billion, or more than half, of its remaining senior secured term loan debt due in 2016. It opened the year with $1.93 billion of that debt on the books – $1.89 billion of term loan B debt and $35 million of term loan C debt.

The company took out $975 million of the former obligation and $20 million of the latter with the $1 billion of proceeds from the sale of new 9% senior secured priority guaranty notes due 2022. It priced $750 million of the notes at par in a quick-to-market transaction on Sept. 5 and then returned to Junkbondland less than three weeks later – though by now sporting its new iHeart name – on Sept. 22, pricing a quickly shopped $250 million add-on at 101 to yield 8.778%.

New deal to repay bank debt

That left $931 million of that 2016 term loan debt on the books at the start of this year – $916 million in term loan B and $15 million in term loan C.

Bressler declared on the call that “we believe that we can opportunistically refinance” that debt.

During the question-and-answer portion of the call that followed the CFO’s formal presentation, an analyst asked whether iHeart – which in addition to its eponymous broadcasting unit is also the parent company of publicly traded subsidiary Clear Channel Outdoor Holdings, Inc. – might consider accessing the financial markets via the outdoor advertising unit, given the latter’s lower average cost of debt and considerably better credit metrics vis-à-vis the parent’s. It has a senior leverage ratio of 3.6 times, versus the parent’s 6.3 times secured leverage measure.

Coleman noted that “Outdoor did approve some debt raises, and clearly it’s a lower cost of capital there,” but he pointed out that since the billboard company operates as a separate entity, “raising debt at Outdoor and increasing leverage at Outdoor is a decision for the Outdoor board, and so while we view that as an alternative, amongst others, that would be up to them with respect to size, timing and availability.”

He also said the company had other sources of capital it might tap to take out the 2016 bank debt.

“We’ve got cash on hand” – $457 million as of Dec. 31 – “we’ve got availability under our ABL [credit facility], we’ve got a significant amount of securities, over half a billion dollars of debt securities and some recently purchased Outdoor equity in our unrestricted subsidiary that can be monetized. We’ve done asset sales over the past year” that have brought in about $800 million, including the recently announced sale/leaseback of a portfolio of tower sites for $400 million.

“So I think when we look at the remaining $931 million of term loan B and a little C in there, we have a lot of alternatives,” Coleman declared.

But he also said that “we have done PGN [priority guarantee notes] issuances to refinance bank debt recently,” including the 9% notes due 2022 that it sold in September, adding that the company considered it an easier way to quickly raise capital.

And that’s exactly what iHeart did later Thursday, pricing its $950 million of new 10 5/8% senior secured priority guarantee notes due 2023 at par in a quick-to-market transaction that was upsized from the $550 million announced during the morning, with the proceeds slated to repay the remaining 2016 bank debt.

‘A clear runway to 2018’

Once that bank debt has been taken care of, Bressler said, the company just has “some legacy notes due in December of 2016” – $193 million of 5½% notes.

He noted that during the fourth quarter, iHeart had repurchased $57 million of those notes as well as $120 million of the 10% notes due 2018 that it had sold last April, leaving $730 million of that issue outstanding. The notes, he said, “were purchased at a discount for a total purchase price of $159 million, further helping us manage our interest expenses in the near term.”

When the 2016 notes are finally taken out, Bressler said, the company will have “a clear runway to 2018,” with no maturities due until then. “We can continue to focus on growing our top and bottom lines across our business segments.”

During the Q&A segment of the call, an analyst noted that iHeart had been buying some of the 2016 and 2018 notes and wondered whether it might consider taking out some of its most expensive piece of debt, the $1.66 billion of 14% senior notes due 2021.

Coleman answered that “the challenge with the 14s is that it’s further out on our maturity structure. So when we think about excess liquidity and how best to deploy that, the ’16 note buyback and the ’18 note buyback were a pretty simple analysis. Those were our next nearest debt maturities, the market seemed a bit dislocated, there was an attractive return, so we were aggressive in buying back those securities.

“I’m not saying that we would never take a look at the [14% notes], but I think we would have to feel pretty comfortable about our liquidity position, not just in the near term; we’ve got some significant debt maturing in 2019 and 2020. To really reach beyond those and buy back something that matures beyond that, it would have to be a pretty compelling argument.”

He concluded that “our focus will continue to be, with excess liquidity, redeploy it at good yield but in the shorter term.”

“Things change over time,” he allowed, “but that’s our position today, and that’s certainly how we’ve conducted our previous debt buybacks.”

At the end of the fourth quarter, iHeart’s consolidated balance sheet showed $20.33 billion of outstanding debt – just under $5 billion of that at Clear Channel Outdoor and the remainder at the parent. Besides the remaining $931 million of 2016 bank debt, the parent also had $5 billion of term loan D debt and $1.3 billion of term loan E debt, both due in 2019, with the rest of the structure consisting of various issues of secured priority guarantee notes and unsecured senior notes.

Clear Channel Outdoor’s debt was fairly evenly split between senior notes and senior subordinated notes. It ended the year with $186 million of cash.

The consolidated iHeart debt load was $158 million less than the $20.48 billion of debt with which it had ended 2013 – but following its several big bond deals last year, its weighted average cost of debt rose to 8.1% from 7.6% the year before.

© 2015 Prospect News.
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