G&E represented two institutional investors asserting derivative claims on behalf of Clear Channel Outdoor Holdings, Inc. (“Outdoor”) against the company’s Board of Directors (“Board”) for breach of fiduciary duty in connection with the company’s unsecured loan of nearly all its cash to its parent company and controlling shareholder, Clear Channel Communications, Inc. (“Clear Channel”).
In 2008, two private equity firms, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P, took Clear Channel private in a $24 billion leveraged buyout – one of the largest leveraged buyouts in history. Since that time, Clear Channel had been saddled with billions of dollars in debt and had been using Outdoor as a primary source of funding. Specifically, through a cash management agreement that allowed Clear Channel to sweep all cash held by Outdoor on a daily basis, Outdoor’s Board permitted Clear Channel to borrow over $700 million, nearly all of Outdoor’s cash, on an unsecured basis from Outdoor at approximately half of the going interest rate for similar loans. Meanwhile, rating agencies viewed a Clear Channel default as “imminent or inevitable,” and there was serious concern that Clear Channel could file for bankruptcy. In that case, Outdoor would have been left as an unsecured creditor, unable to recover the funds it had provided to Clear Channel.
In 2013, G&E was able to negotiate a settlement that returned $200 million to Outdoor’s shareholders, through an immediate reduction in the outstanding loan and the payment of a special dividend. In addition, the settlement included substantial changes in the cash management agreement between the companies that, among other things, permits the independent directors of Outdoor to unilaterally recall the loan and declare a special dividend in the event that the loan balance exceeds certain thresholds, and establishes several reporting requirements on Clear Channel’s financial position to assist the Outdoor Board in controlling the financial risk of the company.