iHeart Ratings Unaffected by Default Notice Pending Court Ruling
NEW YORK–(BUSINESS WIRE)–iHeart Communications, Inc’s (iHeart) ‘CCC’ Issuer Default Ratings (IDR) is unaffected by the receipt of a Notice of Default (NOD) received on March 7, 2016 primarily as a result of iHeart’s request for a legal determination of the validity of the NOD. iHeart is currently operating under a temporary restraining order (TRO) it received on Mar. 9, 2016 rescinding the NOD for 14 days (the TRO can be extended for up to 14 additional days) to provide the court additional time to determine the NOD’s validity.
The NOD was received from holders of at least 25% of the outstanding principal amount of four of the company’s outstanding Priority Guarantee Notes (PGN). It alleges that iHeart violated certain covenants under the PGNs’ indentures when a wholly-owned iHeart subsidiary contributed 100 million shares of Clear Channel Outdoor Holdings, Inc. Class B common stock to Broader Media, LLC on Dec. 3, 2015.
Fitch regards iHeart’s current liquidity as limited and the company would be unable to meet its obligations if iHeart’s debt were accelerated. As of Dec. 31, 2015, iHeart had approximately $360 million in cash excluding $413 million in cash held at CCOH. Backup liquidity consists of the ABL facility that matures in December 2017.
If the company is unsuccessful in resolving the issues alleged in the NOD, the notes accelerate and are in default, Fitch would downgrade the IDR to ‘D’. Finally, if iHeart were to complete a distressed debt exchange (DDE), Fitch would downgrade the IDR to ‘C’ upon the exchange announcement and then downgrade the IDR to Restricted Default (‘RD’) upon the completion of the exchange. The IDR would subsequently be upgraded reflecting the post DDE credit profile.
iHeart has completed several transactions over the past 12 months which reduced near-term maturities and improved liquidity. The company has $193 million maturing in 2016, $230 million in 2017 (A/R facility maturity) and $930 million in 2018. The next maturity wall is now 2019 when $8.4 billion matures.
Fitch believes there is limited room in the existing ratings for further deterioration of iHeart’s operating or liquidity profile. Fitch expects FCF to be negative over the next two years, primarily reflecting the interest burden associated with iHeart’s capital structure and recent capital market activity. iHeart’s operating performance is also hampered by significant secular headwinds within the radio segment.