Clear Channel offers US$4.5bn of remaining loans

The financing backing Thomas H Lee and Bain Capital’s buyout of Clear Channel Communications is a good reminder to investors and arrangers how bad things could be. The deal’s total leverage is 9.1 times to 6.2 times senior secured. Until last week, Citi, Deutsche Bank, Morgan Stanley, Credit Suisse, RBS and Wachovia had struggled to sell the funded US$10.7bn term loan. Arrangers are understood to have sold large chunks of the financing, even offering paper at a discount of 85-86 to reflect the challenging market conditions.

Syndication has been lacklustre since the start. Lead arranger Citi sold US$2bn of the 10.7bn term loan B at 90–91 before the June 17 bank meeting. At the meeting the arranger then offered US$3bn of the remaining US$8.7bn loan, but investors balked at the 90–91 discount. They argued that better quality loans were trading in the high 80s in the secondary market.

At the time LyondellBasell’s US$12.45bn credit facility, which was considered a more attractive investment despite its large size was changing hands at 88.5–89.25.

The size and leverage (9x) of the TLB and overall market conditions forced the arranger to change its tack. The loan is now part of the US$4.5bn piece that is due tomorrow at 85–86.

As for the remainder of the TLB, underwriters tapped into the market’s most liquid players, private equity shops.

The remaining US$4.2bn and portions of some of the other tranches – comprising US$5.5bn in total – have been sold to Apollo Management and Blackstone Group’s GSO Capital at 85, an investor said. Deutsche Bank, Credit Suisse and RBS are understood to have orchestrated the deal and offered the firms leverage for their purchase.

Clear Channel’s buyout financing also includes a US$1bn ABL revolver, a US$1.85bn term loan A, a US$2bn cashflow revolver, a US$705.6m asset sale term loan C and US$1.25bn delayed-draw term loan.

There is also an offering of US$980m of 10.75% senior cash-pay notes due 2016 and US$1.33bn of 11.00%/11.75% senior toggle notes due 2016.

Underwriters are expected to hold on to the bonds until the market improves. Citi, Deutsche Bank, Morgan Stanley, Credit Suisse, RBS and Wachovia funded the debt in an escrow account on May 22.

Before buyers, sellers and lenders settled on a lower price for Clear Channel last month, the buyout had been backed by a larger US$18.525bn financing. The buyout group also agreed then to increase the rate on the facility by 40bp to Libor plus 365bp.

Thomas H Lee and Bain originally committed to purchase the broadcaster for US$26bn in 2006. As the market turned around, the buyout soon became contentious.

Last March, the sponsors filed two lawsuits against the bank group, claiming that it had reneged on its commitment to provide up to US$22.125bn of debt to fund the deal. The buyers filed complaints in New York and were enjoined by Clear Channel in a lawsuit filed in Texas, where the company’s headquarters are based.