What happened

Shares of Clear Channel Outdoor Holdings (NYSE:CCO) were going up on Tuesday, a day after the company announced it amended its credit agreement. By itself, that news probably isn't enough for the stock to move as much as it has. Rather, it's likely also going up because of impressive U.S. retail results in May.

As of 11 a.m. EDT, Clear Channel Outdoor stock was up 4%. But it had traded 13% earlier in the session.

A hand plots a chart higher.

Image source: Getty Images.

So what

Clear Channel Outdoor has over 570,000 advertising displays, both traditional and digital. And during the COVID-19 pandemic, business plummeted. CEO William Eccleshare said on the first-quarter earnings call, "The scale and speed with which near-term demand has declined and request to either defer or cancel current contracts is unprecedented."

Think of the advertising you typically see on a highway. The lion's share belongs to dining and shopping. Those activities were suppressed by the coronavirus. And when the consumer isn't likely to buy, the business isn't likely to advertise. That hurts ad companies like Clear Channel Outdoor.

Today, however, the Census Bureau released encouraging retail trends for May. During the month, total retail and food-service sales jumped 17.7% from April. They're down 6.1% from May 2019, but it's still a sharp improvement. Therefore, it stands to reason Clear Channel Outdoor's "unprecedented" decline in demand will soon turn around.

Now what

The amendment to Clear Channel Outdoor's credit agreement gives it some breathing room while business potentially rebounds. Consider the company has $5.2 billion in long-term debt and only $372 million in cash. That debt-to-equity ratio is high. And because its earnings plummeted in the first quarter, its first lien net leverage ratio (a ratio calculated with adjusted earnings called EBITDA) reached 5.7, and is expected to rise in the second quarter.

Clear Channel Outdoors' previous credit agreement said it couldn't reach 7.6 -- a number the company was getting dangerously close to. Now the company's creditors have extended the timing of its leverage restrictions. For now, it only needs to hold on to at least $150 million in cash, which still gives the company some cash on the balance sheet to use at its discretion. 

Going forward, it's still a high debt load for this small-cap company to manage. But at least it has some flexibility while business picks back up.

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