Peter Kafka

Recent Posts by Peter Kafka

Big Media Debt Headaches: Clear Channel Today, CBS Next Week?

Just like everyone else who racked up lots of loans when the banks were giving cash with almost no strings attached, big media have a debt hangover. Clear Channel, whose private equity owners took on $17 billion in debt to acquire it last year, is getting hammered by investors who think it won’t be able to pay that money back.

Next up for scrutiny: CBS, which has a big debt payment due next year and not that much cash on hand.

The Wall Street Journal outlines Clear Channel’s situation: The company’s debt is trading at pennies on the dollar because investors worry that its radio and billboard businesses won’t generate enough cash to satisfy certain loan covenants, which would then jack up the rates on the existing debt. The company tapped a credit line on Monday, but that’s not making anyone feel more comfortable:

Drawing down the remaining $1.6 billion in its $2 billion credit facility injects more cash into the struggling company’s balance sheet, but the move has analysts wondering whether Clear Channel may be choosing to access those funds now for fear it won’t be able to later. If the company trips certain financial covenants–conditions a company must meet to satisfy lenders–it may not be able to tap that credit, analysts say…

If the debt ratio worsens rapidly over the next few quarters, eventually hitting 9.5 or more, debt holders have the right to ask for higher interest payments or other fees from the company. They also could demand their funds back immediately, potentially sending the company into bankruptcy proceedings.”

No one is mentioning the B word in connection with CBS (CBS). But Barclays analyst Scott Shiffman, in a note published last week, does make ominous sounds (title of his report: “CBS–The Slippery Slope Has Begun”).

The gist: CBS has a $1.6 billion bond that matures next year, and about $500 million cash on hand. In order to make that payment, the broadcaster has several unappealing choices, including cutting its dividend or drawing down a revolver loan.

Any of those options, Shiffman argues, in conjunction with a weakened TV business, could prompt the newly vigilant credit rating agencies to downgrade CBS’s debt below investment grade–i.e., junk. S&P may be the first to make a call, perhaps by the end of the month, he says.

No comment from CBS. But the company does report earnings next week; expect to hear lots about this from Les Moonves and company during the Feb. 18 conference call.

By the way: I’d like to show you the CBS News interview of the month–not Katie Couric’s “60 Minutes” interview with Hudson hero pilot Chesley Sullenberger, but her pre-Grammy chat with Lil Wayne. Which included Couric’s instant classic line “You also, reportedly, like…like your weed.”

Alas, CBS has yanked all the usable versions off of YouTube and isn’t showing them anywhere on its vaunted CBS Audience Network. What gives Quincy?

Fortunately, Gawker Media’s Jezebel taped the thing, so you can head over here to watch it, as some 19,000 other people have. Well worth a couple minutes.

UPDATE: CBS Interactive head Quincy Smith graciously points out that his network does indeed have a short clip of Lil Wayne interview, and says that licensing issues prevent the network from letting us see the whole thing. But still–surely, there was some way to include the weed line in the excerpt! That’s the best part!

Here’s what they’ve got:


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