The default rate of the S&P/LSTA Leveraged Loan Index jumped to its highest level in three years after iHeartMedia, one of the largest highly levered remnants still standing from the LBO boom, filed for Chapter 11 bankruptcy protection.
The radio giant’s highly anticipated filing included $6.3 billion of Clear Channel term loans, propelling the rate to 2.42%, from 1.7% previously, and marking the fifth largest default in the history of the Leveraged Loan Index.
Though significantly higher than the 18-month low of 1.36% where it stood the end of July 2017, the current rate still remains well inside the 3.1% historical average.
By number of issuers, the default rate is now 1.93%, from 1.94% at the end of February.
As the table below shows, all but one of the 10 largest S&P/LSTA Index defaults on record were products of the 2006/2007 credit boom, or in the case of Energy Future Holdings and Caesars, the resultant LBO boom.
For iHeart’s part, the media giant, formerly known as Clear Channel, filed for Chapter 11 in bankruptcy court in Houston after more than a year of negotiations with its creditors with an agreement in principle to cut its $20 billion debt load by half.
According to a Form 8-K filed with the Securities and Exchange Commission, the company said it expects to formally enter into a restructuring support agreement “in short order.” Court filings show an early challenge from the legacy, pre-LBO noteholder group, is expected to the proposed restructuring deal. (See “iHeart files Chapter 11, sees challenge from legacy noteholder group,” LCD News, March 15, 2018).
As with almost all of its $20 billion debt pile, Clear Channel’s $5 billion D term loan due 2019 (L+675) and $1.3 billion E term loan (L+750) were put in place as part of the company’s 2008 buyout by Bain Capital and Thomas Lee Partners, and extended in 2013.
Finally, following iHeart’s bankruptcy filing, the default rate within the broadcast radio and television sector jumped to 33.59% by amount, from 7.23% previously.
For context, Ocean Rig and Answers Corp. rolling off the calculation has partially offset the impact of iHeart’s default, with the default rate falling from 2% at the end of February, to 1.60% at the beginning of this month upon the removal of the two issuers, and prior to this month’s defaults from iHeartMedia and Harvey Gulf. — Rachelle Kakouris
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