DBRS Downgrades Clear Channel Communications to BBB (low), Negative Trend

Dominion Bond Rating Service (DBRS) has today downgraded the long-term ratings of Clear Channel Communications Inc. (Clear Channel or the Company) to BBB (low) from BBB, with the trend now Negative. This downgrade is a direct result of Clear Channel’s management announcing a further $1 billion share repurchase program that will likely result in net debt levels not reducing significantly from the current $7.8 billion. This new share repurchase program counters DBRS’s previous understanding of management’s intention to focus on balance sheet de-leveraging after completing its previous $600 million share repurchase announced in March 2006. As DBRS indicated in its August 31, 2006, press release, Clear Channel’s financial metrics were weak for the BBB rating and with this share repurchase announcement, the BBB rating is no longer appropriate with net debt-to-EBITDA likely to remain around 3.5 times, as opposed to moving towards 3.0 times, with cash flow-to-gross debt remaining at 0.15 times.

In addition, DBRS has now placed Clear Channel’s ratings on Negative trend, reflecting concerns that future free cash flow could potentially be allocated to further share repurchases, and that financial metrics may not improve significantly from current levels. The decline in financial flexibility at Clear Channel comes at a time when the Company is facing significant structural shifts in its core radio franchise that generates approximately 62% of the Company’s EBITDA. To date, the Company has been successful in protecting its franchise, with modest revenue growth while EBITDA margins have remained stable. However, if the Company were to experience any new challenges on its radio operations, resulting in either EBITDA margin or non-cyclical revenue pressure, the ratings would likely be lowered into the BB (high) rating category.

Note:
All figures are in U.S. dollars unless otherwise noted.