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In the wake of roller coaster market fluctuation and fallout from the Alliance Data deal, two Clear Channel (CCU) sources reaffirmed that Bain and Thomas H Lee remain focused on completing the take-private deal despite chaos in the credit markets.
A source close CCU’s lenders said there is enormous pressure from the sponsors to fund the transaction as neither Bain nor Thomas H Lee wants to join the ranks of other private equity firms which have not completed deals; similarly, the funding banks are not keen on disrupting their future working relationships with those sponsors, he added.
A second source close to the situation agreed saying he had yet to see any indication the sponsors were wavering in their desire to follow through with the merger. He reiterated the sponsors had their eye on Harrah’s (HET) debt sale, which “didn’t go particularly well over the past few days to a week. But they funded [the deal].” He said the sponsors’ expectation was that lenders will fund “even if they don’t like it.”
The source declined comment on any potential outs within financing commitments between the sponsors and banks, but said the sponsors “were not worried” about that.
When asked whether the inclusion of “specific performance” in Harrah’s merger agreement and not Clear Channel’s could have had an impact on the former’s closing, the source said he has yet to hear anyone point out that difference. “To some extent, it’ll be a game of who wants to blink,” he added.
HET’s banks are holding a large majority of senior secured notes and CCU’s lenders are prepared for the same rate of success, said the lending source. Bankers began marketing USD 3bn worth of leveraged loans two weeks ago, however failed to attract enough interest at the offered price.
He added that lenders have made some very informal outbound calls to a small group of investors regarding CCU’s loans and the reception has not been very positive.
The credit market has gone from “bad to impossible” within a couple weeks’ time, and no one understands why the Fed’s rate cuts have not penetrated the credit markets, the lending source said.
Agreeing the overall tone in the debt markets has gotten markedly worse in the last two weeks, an industry banker said debt buyers expect deep discounts for high-yield offerings, discounts at which the banks are unwilling to sell.
The source said he guessed CCU’s lenders were still pondering how to absorb the debt in the event it cannot be syndicated. Even so, he said there are hopes that as quickly as the credit market deteriorated, it could also improve by the time CCU’s debt goes to market.
As for an update on HSR approval which remains outstanding, the source close to the situation said things with the Justice Department (DoJ) were being wrapped up. The HSR filing was made a couple weeks ago, he said, but he said it was possible the application would be re-filed to extend the period a bit. He added CCU would not be an early termination candidate as the parties are entering into consent decree, currently being negotiated with the DoJ.
Yesterday, CCU shares took a 6.5% dive, closing at USD 29.38 per share; market reports speculate this was partially the result of Thomas H Lee executive Anthony Dinovi declining to publicly comment on CCU’s buyout status at a private equity conference. His colleague Scott Sperling has previously touted the sponsor’s desire to follow through with the transaction.
“There is such a high sensitivity in this market even ‘no comment’ is interpreted as bad news,” the source close to the lenders said.
Remarking on the aftershock of the “no comment”, the source close said this was more a reflection of Dinovi’s choice to never comment on pending deals and was not specific to CCU.
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