ClearChannel Buyout Not Certain
Posted by: Henry Baum | Mar 27,2008
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To the average consumer, the credit crisis may not necessarily seem like it’s knocking on the door. Sure, there are those people who are facing foreclosure, but the majority of people working their way through the American economy are paying their bills and getting by. Of course, most people would like to have lower debt and lower interest rates on that debt, but this is a far cry from going under.
So when these types of consumers see investment banks or mortgages companies suffering due to the credit crisis, they may feel a slight sense of disconnect, as it doesn’t affect them personally. A story like ClearChannel’s problem may just hit closer to home. Why? Because it is not a case of a financial institution faltering due to the credit crunch, but an industry that is unrelated to credit.
ClearChannel and the Credit CrisisFirst, what is ClearChannel? It’s a media company responsible for such powerhouse radio programs as the Rush Limbaugh show. Now, you might think that ClearChannel’s woes are a result of the public becoming more liberal-minded. But that is not the root of ClearChannel’s woes. While it’s certainly true that ClearChannel’s problems are a result of some ratings difficulties, their real problems began because a number of high-profile banks, such as CitiBank, Morgan Stanley, Credit Suisse, and Wachovia, have refused to help with ClearChannel’s buyout.
The fear for those banks is that because of their rising problems in other financial sectors, such as the mortgage market, they cannot risk taking on a company like ClearChannel, which has had its own share of financial difficulty. The buyout would amount to 20 billion dollars, a fair sum tied up in debt. As a result of the bank’s refusal to fund ClearChannel’s buyout, the company sued to make sure the banks held to their original agreement. As a result, ClearChannel shares dropped 17%, as investors were concerned that the buyout would not go through.
The moral of the ClearChannel buyout tale is that the credit crisis is affecting far more industries than the credit card, loan, and mortgage industries. Because of increased problems in credit, banks and other investors do not have the capital, or the confidence, to invest in other industries.
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