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Clear Channel Outdoor Holdings Inc. (NYSE:CCO) (B2 rated) boosted the size of its debt offering to $2.5 billion of senior notes due in 2017, according to a person familiar with the transaction. The company previously planned to sell $750 million of bonds, according to a filing with the U.S. Securities and Exchange Commission. The eight-year notes may yield 9.25% to 9.5%, said the person, who declined to be identified because terms aren’t set.

The Notes will be senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of Clear Channel Worldwide Holdings. Clear Channel Outdoor Holdings and certain of its existing and future domestic subsidiaries will guarantee the Notes, and the guarantees of the Notes will rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors.

The purpose of the offering (according to Clear Channel's 8-k) is:

...to facilitate the repayment of the then-outstanding balance on the CCOH intercompany note to Clear Channel Communications, Inc. (Ca/CCC- unsecured rating) with a corresponding repayment of term loans under the Clear Channel Communications, Inc. senior secured cash flow credit facilities.

These facilities mature August 2010.

Clear Channel Communications, Inc. maintains an 89% ownership interest in CCO (the remaining 11% is publicly owned) and have been sucking the excess cash flow from CCO in order to stave off bankruptcy. It will be interesting to see if the restricted payments covenant significantly affects CCU's ability to continue to drain the cash flow of CCO. CCU's debt holders have recourse only to the equity and the intercompany loan balance (which is going away).

Separately, Clear Channel Outdoor Holdings Inc. bondholders oppose a plan to raise $750 million in debt without their approval, saying the move would violate terms of their loan agreement and put the company in default, the New York Post reported, citing a letter by several lenders to the company.

This should go a long way to giving CCU breathing room as it essentially extends the maturity profile of the company. Ultimately, the company is still too levered and will, at some point, have to find a way to reduce leverage.

Once again, a live example of the exuberance of the credit markets. Be afraid, be very afraid.

Disclosure: No positions

Source: Clear Channel Outdoor Boosts Debt Offering