Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Clear Channel Deal On the Ropes

By

Financing falls through after banks spooked by hard-to-sell debt.

PrintPRINT

The credit crunch has wrapped its tentacles around yet another victim.

The Wall Street Journal
reports private equity firms Thomas H. Lee Partners and Bain Capital are in talks to scrap their $19 billion buyout of Clear Channel Communications (CCU). Publically, both the company and its suitors say the transaction is on track to close next quarter. Privately, the buyers are heading for the exits.

The deal is likely to go the way of other failed takeover attempts, like J.C Flowers' and Bank of America's (BAC) bid for Sallie Mae (SLM) and KKR and Goldman Sachs' (GS) run at Harman International Industries (HAR). The trouble isn't collecting equity, it's the debt.

Private equity firms saddle their targets with loans, which are then typically sold to big banks and hedge funds. But turmoil in the credit markets has crimped investors' appetite for new assets. The banks that had agreed to finance the Clear Channel deal -- Citigroup (C), Morgan Stanley (MS), Deutsche Bank (DB), Credit Suisse, Royal Bank of Scotland and Wachovia (WB) -- have little room on their balance sheets for more loans. As a result, Bain and Thomas Lee can't raise enough money to complete the transaction.

The deal's imminent collapse highlights the disconnect between buyers and sellers of debt. By most measures, Clear Channel is a good credit. It's the nation's largest radio broadcaster, and despite facing headwinds of a recession, the company still posted profits of almost one billion dollars last year. But even if banks wanted to buy the bonds issued to finance the purchase, they wouldn't be able to.

Losses on mortgage-backed securities and writedowns on loans tied to other botched mergers have forced banks to hoard capital. New investments are the least of their worries, as they struggle simply to stay above water.

Furthermore, the lack of demand and glut of supply stemming from last year's buyout binge means new debt is increasingly difficult to value. Buyers are demanding prices that make no economic sense for the issuers. Private equity firms must choose between selling the bonds at a huge loss or eating a break-up fee. Neither option is pleasant, but as credit markets continue to seize up, there are precious few easy decisions.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE