Thursday, September 4, 2008

Clear Channel Set for Clearance

Low Price Signals Sinking Market For Junk Bonds Investment bankers, anxious to unload $980 million of Clear Channel Communications Inc. junk bonds on their books, are preparing to sell them at a clearance-sale price, illustrating just how much the market for risky debt has deteriorated. People familiar with the deal said preliminary guidance on the bonds is in the mid-70-cent range, a level below the already depressed prices on bond deals throughout the credit crunch. The Clear Channel bonds, expected to be sold early next week, have been converted from a bridge loan used to finance the $17.9 billion leveraged buyout of the radio operator. Deutsche Bank, Morgan Stanley, Citigroup, Credit Suisse, RBS and Wachovia, the banks underwriting the bonds, didn't return phone calls seeking comment. If the deal were to sell at 75 cents on the dollar, such a discount would spell losses of about $245 million for the banks underwriting the deal. "From the banks' standpoint, they're probably just trying to get these off the books to clean up their balance sheets," said Matt Wilcox, an analyst at KDP Investment Advisors. "I'm a little surprised they're trying to do it so quickly after the summer season without getting a flavor of the market." With the radio company's secured bank loans trading at around 83 cents on the dollar, and junk bonds riskier than loans, it seems inevitable the bonds would be priced at such a low level. Yet the mid-70s area spells a more than 16% yield for that debt. It's the first marquee LBO bond deal to come to market since a bond offering for the Harrah's Entertainment Inc. buyout several months ago. Clear Channel's $980 million is a substantial offer for the junk-bond market, where only two deals totaling $504 million were priced in the entire month of August, according to Dealogic. It follows the sale of about $10 billion of the company's loans this summer, much of which came at discounts in the low-80-cent area. Bankers were able to sell most of that deal by offering financing for hedge funds and private-equity buyers. The junk-bond market has been relatively stable for the past month, with the derivatives index trading between 92 cents and 93 cents on the dollar, yet that stability has been maintained during a period of little supply. Private-equity groups Bain Capital Partners LLC and Thomas H. Lee Partners LP closed their long-awaited buyout of Clear Channel in July, after months of doubt about whether the deal would actually get done. In late July, the $2.31 billion bridge loan for the radio operator's LBO converted into this $980 million bond offer and $1.33 billion of riskier bonds known as pay-in-kind toggle notes that aren't being offered to investors yet, according to S&P's Leveraged Commentary & Data unit. LBO debt, in general, hasn't been popular with junk-bond investors since markets seized up a year ago. Banks have been selling the debt they have been stuck holding any way possible, most of the time at discounts in the 80-cent and 90-cent range.

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