• by Erik Sass  @eriksass1, February 24, 2009

In another sign of mounting financial worries in the radio business, Standard & Poor's has downgraded the credit rating of CC Media Holdings, the company formed by private-equity firms to take Clear Channel Communications private, lowering its credit rating from a B to a B-.

The decision was motivated by growing concern that the holding company might not be able to keep up with payments on nearly $18 billion in debt assumed in the deal to take the company private last year. In keeping with this judgment, Standard & Poor's also said that CC Media Holdings will stay on its CreditWatch listing for the time being.

Last year, CC Media Holdings was formed by Thomas H. Lee Partners and Bain Capital Partners to buy Clear Channel Radio and Clear Channel Outdoor, which together comprise Clear Channel Communications. After much wrangling between the private-equity firms and Clear Channel shareholders, the six-bank consortium tapped to fund the deal balked at the agreed price of $37.60 per share.

A highly public legal dispute followed; Clear Channel and the firms sued the banks for tortious interference, claiming they were trying to derail the deal by inserting "poison pill" provisions in their funding agreements. Eventually, the case was settled out of court with a new agreement lowering the price per share to $36.

Clear Channel is not the only media company saddled with relatively new debts that are looking more and more onerous. In December of last year, Tribune Co. filed for Chapter 11 bankruptcy protection, finding itself unable to service a nearly $13 billion debt--most of which was assumed in a highly leveraged deal engineered by billionaire Sam Zell to take the company private as an employee-owned business.

More recently, over the weekend two other big newspaper publishers, Philadelphia Newspapers LLC and the Journal Register Co., declared bankruptcy. Both companies had also assumed large debts--in the first case by going private, in the second with an ill-advised buying spree.

All these companies borrowed money at the height of the credit bubble. Since then, the collapse of the credit markets, coupled with the sharp secular downturns in radio and newspaper ad revenues, have turned once-serviceable debts into potentially fatal financial burdens.