Underwriters Launch Part of Clear Channel's $10B TLB
June 19, 2008
Underwriters Tuesday launched a $3 billion chunk of a $10.7 billion term loan B for Clear Channel Communications.
The deal comes nearly one month after private equity firms Thomas H. Lee Partners and Bain Capital Partners and a consortium of banks settled their dispute over the financing of the company’s $20 billion buyout.
Some investors said the Clear Channel buyout is the poster child for the highly levered--and highly risky--deals of the LBO boom years, while others said the company is strong enough and has enough of a market share to pull through the current downturn and turn a profit.
“I think Clear Channel is large enough to navigate the headwinds in its industry,” said a New York-based investor. “It’s a leverageable type of deal. Everyone knows that, and everyone knows the risk. If the price is right, it could be really attractive.”
Price talk on this portion of the term loan B is at Libor plus 365 bps, with an OID between 90 and 91. The bank meeting was held Tuesday in New York.
If the underwriters are able to syndicate the deal in its entirety, it would mark the first time since the start of the year a bank group has been able to do so for such a large LBO. Since 2008 began, banks have been using various alternative measures, such as selling new debt on the secondary market, to rid themselves of 2007’s overhang.
The $10.7 billion term loan B is one part of a massive $18.37 billion debt package, which contains a $1.4 billion term loan A, a $2 billion revolver, a $705.6 million asset sale term loan C, a $1.25 billion delayed-draw term loan, $1.33 billion in 11% to 11.75% senior PIK toggle notes due 2016 and $980 million in 10.75% senior cash pay notes due 2016. Price talk on the term loan A is at Libor plus 340 bps.
The Clear Channel deal is one of the largest buyout deals to run into legal problems over debt financing in the wake of the credit market crisis that began last year. Thomas H. Lee and Bain filed complaints in New York and Texas in March against the banks—Citigroup, Morgan Stanley, Credit Suisse, the Royal Bank of Scotland, Deutsche Bank and Wachovia—accusing them of attempting to back out of their agreement to finance the deal. Clear Channel joined the Texas suit.
The buyout consortium said the banks asked for a change in terms that prevented the deal from being completed. The banks said that they were abiding by the commitment letter and were ready to fund the deal “on mutually agreeable terms.” They agreed to complete the buyout at a lower price of $17.9 billion, or $36 per share.
Clear Channel will also issue a $1 billion receivables-based credit facility subject to a borrowing base, priced at 240 bps over Libor and carrying a 37.5-basis-point commitment fee. The equity contribution from the sponsors on this deal is $2.4 billion.
Clear Channel is rated B+ by Standard & Poor’s.
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