Facing the Music of a Heavy Debt

Just this week, Clear Channel Communications, the nation's largest radio station owner, tapped a last-resort credit line. Clear Channel is a viable businesses suffering from a surfeit of debt. Investors and creditors are now paying the piper. Their stories provide the overture to the restructuring opera just beginning in corporate America. Take Clear Channel (Please!). The private equity firms Bain Capital and THL Partners paid top dollar to win shareholder approval for their $27.5 billion buyout of the company in mid-2007. The price was later renegotiated, but clearly not by enough. Clear Channel had over $19 billion of borrowings at the end of its most recent quarter. This week it tapped the remaining $1.6 billion of a credit facility, sending its more senior loans to trade at just 45 cents on the dollar. Radio advertising is linked to the economic cycle. But Clear Channel's troubles have been intensified in this recession by the onset of competitors like satellite radio and the iPod. Local radio advertising fell a staggering 21 percent in November from the same month a year earlier, according to the Radio Advertising Bureau's most recent figures. National advertising was down 25 percent. If Clear Channel had a more forgiving capital structure, it would be better able to tough it out. The company made nearly $500 million in the third quarter, reflecting a nearly 30 percent operating margin. The trouble is that interest payments swallowed $312 million of that. As the downturn worsens, Clear Channel edges closer to breaching its debt covenants.