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Bankers’ revenge

By
Josh Kosman
Published Oct. 7, 2009, 4:00 a.m. ET

The third time is no charm for Clear Channel Communications.

After failing twice to restructure the company’s debt, the private-equity firms that own the radio and billboard giant are asking some big banks to help them keep the company from defaulting on its loans.

But after a bruising fight two years ago to force the banks to live up to their commitment to fund the ill-fated buyout, those same banks now are telling the PE firms to take a hike, two sources close to the situation said.

That means Clear Channel may now default by year-end or early next year, one of the sources said.

In July 2008, Bain Capital and THL Partners bought Clear Channel, which boasts 110 million radio listeners a week, in a highly leveraged $27 billion buyout. Now, the company is in danger of exceeding a loan requirement that its senior debt equal no more than 9.25 times its cash flow.

Banks are saying the company has no options left — which could be a form of payback.

When the PE firms reached the deal to buy Clear Channel in November 2006 the credit markets were hot, but they went ice cold before the deal closed. The banks that underwrote the debt — Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, RBS and Wachovia — wanted the PE firms to walk away from the buyout so they did not have to issue loans that would be difficult to syndicate.

The PE firms stuck with the deal, and most of the lenders have since sold their Clear Channel debt at discount prices.

One source said his bank feels as though it was mistreated during the buyout, and is not inclined to lend the PE firms a hand.

But so desperate are the PE firms for help, a source said they offered to steer business from other portfolio companies to the banks that help Clear Channel.

Bain and THL spokesmen insist their firms have not reached out to banks. Clear Channel declined to comment.

Clear Channel already has tried twice to restructure its debt. The most recent attempt was by its Clear Channel Outdoor unit to launch a $3 billion debt offering, which failed to attract investor interest.

Clear Channel earlier proposed to several of its biggest lenders that it swap some of their loans for more secure Clear Channel Outdoor debt. That did not succeed, either.

Bain and THL themselves may present the company’s best hope, because they could inject the company with new cash to keep it in compliance.

But in the long run that might not be their best option. The PE firms together own about 16 percent of Clear Channel’s senior loans, and if the company goes bankrupt, they would likely own a piece of the de-leveraged business, which could turn into a profitable investment, said a source who owns Clear Channel loans.

As such, Bain and THL might conclude it’s wiser to repossess a piece of the business on the cheap than invest more in a company that is well underwater. [email protected]