DBRS Maintains Clear Channel Under Review with Negative Implications

DBRS has today indicated that the long-term ratings for Clear Channel Communications Inc. (Clear Channel or the Company) will remain Under Review with Negative Implications. On May 18, 2007, Clear Channel’s board approved a transaction that, following a shareholder vote, will result in the privatization of the Company. DBRS believes that there remain sufficient uncertainties surrounding the current proposal that require clarity before a rating can be assigned and the Company can be removed from DBRS’s review. DBRS placed the Company Under Review with Negative Implications on October 27, 2006, following the announcement that the Company’s board had approved a leveraged privatization transaction with a small group of private equity investors. (This review was maintained in DBRS’s report published on January 17, 2007). Following months of negotiations, alternate proposals and rescheduled shareholder votes, a proposal has emerged that, if approved by shareholders, would result in the owners receiving $39.20 for each share and the right to participate on a pro rata basis in up to 30% of the new equity being invested to purchase the Company.

DBRS expects to get clarity on two issues that will likely resolve the Under Review status. First, an affirmative vote to the most recent proposal will provide the necessary clarity needed to assign a new rating. DBRS notes that the probability of a highly leveraged privatization has increased. However, a negative vote by shareholders is likely to result in a continued review until such time as we are able to assess to Company’s financial policy, which DBRS expects would be communicated shortly after a shareholder vote. Second, the debt financing proposal as written in the Company’s proxy statement indicates that a large portion of the funds to be used to pay the Company’s shareholders will come in the form of secured debt. DBRS believes more clarity is required regarding details of the capital structure, including where the existing bonds will rank relative to the new secured debt.

While DBRS requires clarity around the aforementioned issues, we believe that the current proposal has been uniquely crafted to address the specific concerns of the large holdout shareholders and as such is more likely to receive shareholder approval. Should the proposed transaction be completed, DBRS expects that the Company’s total debt will approach $22 billion, with a resulting leverage ratio of debt-to-EBITDA exceeding 10 times. DBRS notes this would represent a material deterioration in the Company’s financial profile.

Once resolution to the Under Review status is achieved, which DBRS expects to happen at the closing of the transaction, the resulting rating is likely to be in the B range, representing a multiple-notch downgrade.

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