S&P Downgrades Clear Channel Credit Ratings

Standard & Poor's lowered its credit rating for Clear Channel Media Holdings to "highly speculative." The cut was motivated by concerns that Clear Channel will not be able to service the debts assumed in the $23 billion deal to take the company private last year -- and that it will not be able to convince lenders to renegotiate lending covenants for the remaining debt of about $19 billion.

The news of the downgrade follows reports this weekend that lenders that facilitated the deal may deliberately force the company into default as a stratagem to take control of its equity. According to the Financial Times, which first reported the news, the financiers might be able to accomplish this by refusing to agree to a debt swap with Clear Channel Media Holdings, the company created by private-equity firms to take Clear Channel Communications private.

This is not the first such downgrade for Clear Channel. In February, Standard & Poor's 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-. Clear Channel has also remained on S&P's CreditWatch listing.



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 alone among radio broadcasters falling afoul of credit ratings agencies. In March, Moody's Investors Services began producing a "Bottom Rung" list of companies it considers most likely to default on their debts in the next year. The list included Citadel, Cumulus, Emmis, Radio One and Salem.

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