Bain and Thomas H. Lee paid $17.9 billion to buy media-and-entertainment company Clear Channel Communications just before the economy headed south and radio advertising deteriorated. Today, Clear Channel's actively traded debt is rated at the lower end of the "junk"-bond universe, even though revenue and operating income rose last year. The company has more than $12 billion in debt due in 2016 and default is a "real possibility," said Melissa Link, an analyst at Fitch Ratings, in an interview. Clear Channel declined to comment on Ms. Link's analysis. WSJWhoops! However, Clear Channel Communications owns controlling interest in some subsidiaries with money. One of these is Clear Channel Outdoors which is the billboard renting company. So Clear Channel Outdoors is borrowing $2.2 billion and using the money to pay a dividend. About 40% of that dividend goes to Clear Channel Communications and about 60% goes directly to - T.H. Lee and Bain! But wait, that's not all.
Clear Channel Outdoors is also paying hefty management fees to Clear Channel Communications and is lending it money unsecured - just based on promise to pay back with no collateral. Not just a little money, but hundreds of millions of dollars - and at about 1/2 the interest rate Clear Channel Communications would have to pay on the open market.
JHL Capital Group, a $1.5 billion Chicago hedge fund, argues in a letter to the billboard company that its board members may be liable for "breach of duty" due to cash transfers to the larger media company, according to the Nov. 29 letter.So let's summarize. Clear Channel Communications borrowed a whole lot of money to become a dominant owner of radio channels. It used that power to make American radio into a bleak right wing wasteland of hate radio . Its managers, the May family and Tom Hicks were highly connected Texas money men who helped G.W.Bush become rich and then President - and got a lot of favors in return. When it ran into troubles because of excessive debt, it sold itself to Bain and Lee - the sale, of course, financed by even more debt.
Financing for the deal is being provided by Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Wachovia and Royal Bank of Scotland. All those banks, with the exception of Wachovia, are also providing about a third of the equity for the deal. [NYTimes]That was in 2008 - great timing. Wachovia is gone now, and all the other banks needed massive bailouts to stay alive. But that mountain of debt is still there, Clear Channel is still paying Limbaugh $40million a year, and now Bain and Lee are getting their money back by piling on more debt, more fees, more unsecured loans. When the GOP and its supporters on hate radio attack the Democrats for opposing the "free market", this is what they mean. A market where politically connected clever operators, with expensive lawyers and accountants, can make money by borrowing from someone else - and keeping it!