A Very High Risk, High Return Bond

Includes: AGG
by: Henry Nyce

Clear Channel Communications Inc. offers a 6.875% bond that is due 06/15/2018. The CUSIP is 184502AD4. It is currently selling around $625 to $650 per bond and purchasing it at $640 offers 10.5% interest. Purchasing 5 bonds would cost one about $3200 plus fees and would offer $343.75 interest annually. Assuming the company survives till 2018, it will give one another $460 in capital gains when the bond is paid out.

The Big Question:

The question is, "will Clear Channel Communications survive the next 5 years and be able to repay the principal on the bond?" Clear Channel Communications is not a publicly traded company. However, shares of the Company's parent, CC Media Holdings, Inc., are traded on the Over the Counter Bulletin Board (OTCBB) under the ticker symbol CCMO. The Company's outdoor advertising subsidiary, Clear Channel Outdoor Holdings, Inc., is separately traded on the New York Stock Exchange [NYSE] under the ticker symbol CCO.

To understand the risk involved in this bond, it is necessary to investigate the financial viability of these 2 entities. CCO is an outdoor advertising company that owns and operates advertising display faces worldwide. As of 2/2013 it owned or operated about 650,000 advertising displays. It also provides cleaning and maintenance services to several industries, especially retail and service establishments. Standard & Poors recently wrote that it expects sales to increase 2.6% on a currency neutral basis. CCO was hurt by unfavorable currency exchange rates which lowered 2012 results. Standard & Poors also maintains that EPS is weighed down by heavy debt service, but that the company appears to be approaching critical mass with its investment in digital billboards, which should drive stronger yields and margins. Long term debt represents almost half of the capitalization of the company.

CCMO CC Media Holdings, Inc. is a diversified media and entertainment company. It provides radio, digital, out-of-home, mobile and on-demand entertainment, and information services for audiences and local communities, and providing opportunities for advertisers (TD Ameritrade). While revenues have been climbing at the company, it has continued to lose money. Debt extinguishment costs of $221 million and $38 million in impairment costs drove the company to its third year in a row of losses. Book value of the company is -$96.88 per share. The company has $20 billion worth of debt. On the other hand, 75% of the shares are held by insiders. The real question is, "Can Bain Capital get this company back on to a sound footing?"

With smaller debt payments due in 2013, 2014 and 2015, CC Media Holdings faces $10.1 billion of payments due in 2016. Moody's maintains that the company must begin to do better within the next several years in order to restructure this debt.

So the answer to the question of survival depends upon management. Bain Capital took over a company on the ropes in 2008 and is attempting to restructure and remake it. That is the reason that the interest is so high on the company's debt. I am fairly well convinced that Bain is making progress and implementing the needed changes to regain profitability. Management laid off a huge number of their employees at the radio stations in December. Management is also restructuring the way it does business, updating outdoor signs digitally and also introducing new ways of doing business. There is a good chance Bain will succeed if the country does not fall into another recession which would drive down advertising rates again.


If one is willing to constantly watch the above 2 companies over the next 2 years, one could buy a small amount of this bond. Currently the bond is paying the interest and looks like it can continue to pay it for the next 2-3 years. However if one notices that the companies are still losing money after 2 years, it signals time to withdraw and sell the bonds. This is a very risky investment because of the great amount of debt that the company has accrued. However if one is confident that Bain Capital can turn these companies around and we are not headed into another recession, one may want to put some capital in this bond to secure the high interest.

Disclosure: I am long the Clear Communications Bond. I wrote this article as a consequence of having the bond and wondering about its viability.I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.