Is Clear Channel's $2.5 Billion Upsized Bond Offering An Event Of Default?

Yesterday CCU surprised the bond world by upsizing its $750 million bond offering, which Zero Hedge highlighted previously as an indication of the top-tick exuberance in the bond market, to $2.5 billion. And according to preliminary rumors it may very well have been the top, with Thomson Reuters' IFR service saying that "counsel for certain lenders has delivered a letter asserting that the transaction and the UOP was an event of default under the CCU Credit Agreement." This is not good for CCU, which had hoped it had sufficiently placated dissident bondholders when it dramatically changed the use of proceeds of the upsized transaction.

As a reminder the original deal was supposed to use offering proceeds to pay down a portion of the 2010 intercompany note, and using the rest for general corporate purposes. The revised deal contemplates using new capital to pay a $500 million dividend to Clear Channel Outdoor shareholders (gee, another dividend recap to sponsors: only 10% of CCO is held by the public, the balance is owned by CCU, which in turn is one of THL and Bain's worst LBOs ever), repay a portion of said interco note, and using about $2 billion for par repayment of bank debt. At least term loan holders are happy.

However any recap that makes TLs and equity happy, usually by definition, leaves the bondholders quite angry. Which may explain today's legal action. If the proposed default is found to have merit, look for a prompt cease and desist order issued to underwriters Goldman, Citi, CS, DB and Morgan Stanley, which would unwind not only the deal, but move CCU's CDS violently, which at 1,200 bps makes no sense, especially with the CCOH deal coming in at 9.25%.

And while CCU CDS has tightened to ridiculous levels, as the chart below indicates, the firm's 3s5s curve is about as steep as it has ever been, highlighting that no real deleveraging at all has occured in the name, but merely more of the same old extend and pretend shennanigans.