iHeart buys back cluster of 10% notes due 2018 in secondary market, sets sights on 14% notes due 2021

26 July 2016

by Paunie Samreth

 

iHeartCommunications strategy to reduce debt has taken a big step forward. The media company recently scooped up some of its junior USD 850m 10% unsecured notes due 2018 at a discount to par in the secondary market, according to two sources familiar with the situation and a buysider.

 

The buybacks amounted to the company acquiring as much as USD 300m in face value, according to the first source familiar. “It opens the door for the company to follow up with liability management strategies,” and iHeart may next move to make a tender or exchange offer for the remaining class, the source said.

 

iHeart was widely expected to repurchase the notes after Judge Cathy Stryker of the 224th Civil District Court of Bexar County, Texas granted the operator a permanent injunction against a vocal group of priority guarantee noteholders (PGNs) who cried foul when it transferred 100m shares of its Clear Chanel Outdoor class B common stock to subsidiary Broader Media.

 

While a forthcoming appeal from the PGNs group is still possible, the recently issued findings of fact from Judge Stryker emboldened iHeart to negotiate a deal to acquire some of the unsecured notes, said the buysider.

 

The 10% notes due 2018 have traded up in recent weeks on rumors of a deal, said the sources. The 10% notes changes hands today at 57 compared to 51.5 in early July, according to MarketAxess.

 

Around the time of the share transfer, unsecured holder GSO Capital Partners had been negotiating with the issuer on a potential deleveraging transaction, said the buysider and a third source familiar. The fund is one of a several that sold its 2018s to iHeart, said the first source.

 

The company is also expected to target its high coupon USD 1.6bn 14% unsecured notes due 2021, said the two sources familiar and buysider. The 14% notes most recently traded at 38.75 today compared to its trade of 36 in early July, according to MarketAxess.

 

iHeart could shave off as much as USD 300m of annual interest expense if it fully targets the 10% and 14% notes, which would leave consolidated iHeartCommunications with around USD 70m of cash flow based on the 2016 adjusted EBITDA expectations of USD 1.87bn, pro forma interest expense of around USD 1.5bn, and annual capital expenditures of USD 300m.

 

According to term sheets released to the public prior to Judge Stryker’s ruling, the ad-hoc PGNs group and the company agreed to allow iHeart to repurchase USD 1.2bn of the borrower’s 10% notes and the 14% notes. The parties also agreed to extinguish debt held at Broader Media & CC Finco and restrict iHeart’s ability to dispose of assets pledged to the PGN noteholders. They both supported the use of assets at Broader Media and CC Finco to back at least USD 250m in new borrowings, although iHeart wanted USD 275m in borrowing capacity.

 

iHeart’s USD 1bn 9% PGNs due 2022 changed hands yesterday at 74.5 for a 15.601% yield compared to its level of 69.75 in early July, according to MarketAxess.

 

iHeart and GSO did not return requests for comments.