NEW YORK ( TheStreet) -- Ryan Seacrest's $300 million private equity score may act more like a new funding round for debt-laden Clear Channel ( CCMO) than an investment in new media ventures run by the America Idol host. That's because Thomas H. Lee Partners and Bain Capital -- both big financial backers of the broadcaster -- are funding the deal to bring in mega-profitable Searcrest productions like "Keeping Up With the Kardashians" that can act as a savior for the long suffering Clear Channel investors.
At the height of the credit boom, THL and Bain Capital spent $17.9 billion to buy Clear Channel, which has a 89% ownership of Clear Channel Outdoor Holdings ( CCO), in a deal that's since yielded billions in losses. With a partial ownership in Ryan Seacrest Productions and the $300 million it has to invest, Clear Channel and its private equity owners may be hoping that Seacrest can instruct high returning media investments and help the company fix its finances by 2014, when a daunting $4 billion in debt comes due. In a January 30 report, Moody's Investor Service said that Clear Channel has $16.5 billion in debt coming due by 2016, the largest debt stock of any company with a rating of B3 or lower
a highly speculative rating in that time. The agency gives Clear Channel bonds a junk Caa2 rating that indicates very high credit risk. "Many of these companies will face challenges refinancing their debt, especially if their capital structures are untenable and if business fundamentals do not improve," wrote Moody's Investor Service analysts Kevin Cassidy and Tiina Siilaberg in the note. In 2012, Clear Channel's debts are manageable, notes Moody's and Standard & Poor's. The investment by Clear Channel and the private equity investors adds to their collaboration with Seacrest, who hosts "On Air With Ryan Seacrest" and "American Top 40," both carried on Clear Channel radio stations. With the $300 million in funds, Seacrest is looking to add to his successful cable programming and a newly created joint venture with Mark Cuban-owned HDNet, AEG and talent agency-CAA. But the deal may also represent a significant equity push by Clear Channel's owners to shift the company's income statement toward growth Web media businesses ahead of its debt maturities.
|Can Ryan Seacrest Save Clear Channel?|
AOL ( AOL) made a similar sized media push to supplant its declining online subscriber revenue when it bought The Huffington Post for $315 million in Feb. 2011. For a media deal, AOL's acquisition represented one of the largest transactions in recent memory, a signal that Tuesday's Ryan Seacrest Productions investment shouldn't be downplayed. "I'm excited to collaborate with Clear Channel, THL and Bain Capital to seize on investment opportunities that capitalize on unique content, new technologies and distribution platforms," said Seacrest in a press release. As part of the partnership Seacrest will maintain a controlling stake in his production company and will work directly with Clear Channel Chief Executive Bob Pittman, Richard Bressler of THL Partners and Ian Loring of Bain Capital "to maximize the strategic and operational value of the partnership," according to a statement. Bressler and Loring will also work separately with Seacrest to bolster their capital investment. For more on private equity buyouts, see the 9 biggest deals of the buyout boom and Blackstone's "big retail" contrarian bet. Ryan Seacrest, THL Partners and Bain Capital weren't available for comment on the story. Prior to taking Seacrest onboard, Clear Channel underwent sweeping change. The company appointed Chief Executive Pittman in November and it rebranded its radio business to Clear Channel Media & Entertainment in January. Both moves signal a shift in strategy, as some dim on the growth prospects of the company's radio business. Pittman built Clear Channel's Web music platform, called iHeartRadio, which captures some of the online and mobile growth prospects that companies like Pandora ( P) and Spotify are tapping outside of traditional airwaves. The iHeartRadio music service links to Facebook and puts the company's 850 radio stations online and on smartphones. Recently, Clear Channel launched a mobile app for the service. The platform and recent partnerships with Microsoft's ( MSFT) Xbox Live and Zynga ( ZNGA) signal the strategic importance of the effort for Clear Channel. But all of that change has done little to sway the underlying financials of Clear Channel, which is the largest radio broadcaster in the U.S. and operates a broad reaching billboard network. Over 97% of the Clear Channel's $1.6 billion in quarterly revenue comes from its radio broadcasting and outdoor advertising business, as of its most recent quarter ended in September.
Even with rebounding sales, strong regional diversification and forecasts that the billboard's business - Clear Channel Holdings - will turn a $59.1 million profit in 2011 that will grow to $76 million in 2012 according to Bloomberg consensus estimates, the company faces serious tests. Clear Channel's consolidated businesses are struggling amid a sea of losses and a $19.9 billion debt load, meanwhile its largest revenue source, radio broadcasting, is a loss leader. Overall, the combined company is set to lose over $200 million in 2011 after notching $4 billion-plus annual losses during the recession. After the July 2008 buyout was cut, THL Partners and Bain Capital added billions in debt to Clear Channel's balance sheet, just as the company's key radio broadcasting and outdoor advertising revenue streams dropped off. As a result, the company needs fast growth to make up ground and put it on a more sustainable debt track before large debts start coming due. In a December note downgrading Clear Channel's highly speculative CCC+ debt rating outlook from "Positive" to "Negative", Standard & Poor's said that the company will be able to service its near-term debts, generating positive annual cash flow of over $200 million through 2013 on moderate sales growth. However, things get dicey in 2014, when $4 billion in debt matures. That's because to meet liquidly covenants, the company would need revenue at pre-recession levels, but Standard & Poor's sees a sales slowdown. "In our view, such slower growth heightens refinancing risk surrounding U.S.-based radio broadcaster and outdoor ad provider
Clear Channel's formidable debt maturities in 2014 and 2016," writes Standard and Poor's. With THL Partners and Bain Capital's $300 million in growth investment funds for Ryan Seacrest Productions, which will benefit now undisclosed minority owner Clear Channel, the private equity investors may be hoping for Seacrest to strike a media growth vein to propel the company in coming years. For Seacrest, who's grown from an "American Idol" co-host to a bona fide Hollywood media mogul, the $300 million in private equity cash represents his biggest and most ambitious break yet. After Seacrest egged "American Idol" contestants to go for broke singing in front of the nation, his private equity partners may be hoping he's got a similar performance knack in investments, which just may stave off an ill-fated exit from a megadeal of the boomtimes -- Written by Antoine Gara in New York