Mega-LBO Clear Channel, which closed a mere 9 months ago, and is faced with a staggering debt load, is considering among other options, a prepackaged bankruptcy to address its insurmountable leverage, the NY Post reported today. As Zero Hedge disclosed several months ago, CCU had drawn whatever cash it had available on its revolver and the only recourse it has at this point to raise funds is to beg its PE sponsors Tommy Lee and Bain Capital for an emergency cash allowance or to sell assets. As the former is out of the question considering the state of the PE industry, it appears that the latter is exactly what both the company and the banks are currently considering. According to the Post:
As part of those discussions, one topic being debated is a pre-packaged bankruptcy, one source said. A second person familiar with the matter stressed the talks are at an early stage. Both sources said the senior lenders might be interested in trading debt for assets, though such talks have not entered a serious stage, one of the sources said.
Some additional insight from the Post:
What Clear Channel has in its favor is that it owes senior lenders $16 billion of its $18 billion in long-term debt, and for the most part the senior lenders may not be interested in forcing a bankruptcy, said two sources close to the situation.
A significant number of the lenders, including GSO Capital, bought debt in Clear Channel from underwriters, who used leverage to help reduce their exposure at a time when the credit markets were seizing up.
The theme of too big to fail seems to be quite a thorny issue these days. However, GSO owner Blackstone is definitely sweating the rapidly increasing cash burn at CCU: by some estimate the company, which has $1.6 billion in annual interest expense and about $1.2 in cash flow, which together with its cash hoard of $1.6 billion will last CCU about 18 months. As the Nortel situation demonstrated, companies will likely not wait until the last moment before filing due to the uncertainty of procuring DIPs on good (or any) terms, especially once the credit market turns sour again. As such, it will not be surprising to see a major out of court debt-for-equity/assets exchange in the coming months.
The only real loser? Bain and Tommy Lee, who sued the bank syndicate to let them complete the deal. Whoever said integrity pays...