DBRS Maintains Clear Channel Communications Under Review with Negative Implications

Dominion Bond Rating Service (DBRS) has today maintained the long-term ratings for Clear Channel Communications Inc. (Clear Channel or the Company) Under Review with Negative Implications attributable to the November 16, 2006, announcement that the Company will merge with several private equity partners in a transaction that is valued at approximately $27.6 billion including $8 billion of assumed debt. Since the announcement, the Company has provided further disclosure on how the transaction will be financed, and further details around which Clear Channel debt will be repaid or assumed.

Despite this disclosure, DBRS believes it is prudent to keep the ratings Under Review until greater clarity is given around two issues. The Company has made an initial proxy filing that indicates the proposed financing of the merger will likely consist of $4 billion in equity, with the remaining $14.7 billion to be debt financed. Based on DBRS calculations, Clear Channel could see its gross debt levels exceed $22 billion, although this amount could be reduced pending potential asset sales or through potential mandated divestitures to satisfy regulatory requirements. Notwithstanding, DBRS expects that the financial profile of Clear Channel will likely experience significant deterioration as a result of the merger, with credit metrics likely resulting in a rating in the “B” category.

The first issue concerns the acquisition financing that appears to consist mainly of secured credit facilities. Therefore, DBRS notes that there remains potential for existing debtholders to be initially subordinated to up to $13.85 billion of secured debt. DBRS does acknowledge that the existing Clear Channel indenture places a limitation on the amount of secured debt, but believes that the private equity partners may try to obtain waivers or, failing this, could try to circumvent the covenant restrictions.

The second issue that DBRS notes relates to the Company’s intention to repurchase certain existing debt. The Company has disclosed that a $1.5 billion subordinated loan facility will be allocated to repurchase the majority of (1) the $671 million of AMFM Operating Inc. notes that mature in 2008 and (2) the $750 million of Clear Channel notes that mature in 2010. As a result, it appears that one tranche of the Clear Channel notes could be redeemed almost in its entirety, and therefore would receive different treatment in respect to the other Senior Notes & Debentures. DBRS is not aware at this time of the specific reasoning for why the 2010 maturity is being repurchased instead of other Clear Channel debt that have nearer term maturities beginning in 2008.

Finally, DBRS acknowledges that Clear Channel has sufficient liquidity to redeem the $250 million of notes maturing in February 2007, which will likely be financed through its existing credit facilities and/or cash resources. Therefore, once DBRS ascertains greater clarity on the hierarchy of the final debt capital structure and the amount of existing notes that the Company intends to repurchase, DBRS will resolve the Under Review status, which could occur as early as the filing of the definitive proxy statement.

Note:
All figures are in U.S. dollars unless otherwise noted.