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Talks continue on the future of Nine

Nine lenders have approved the sale of ACP Magazines but are still facing a looming deadline to avoid bankruptcy.

Talks concerning the future of Nine Entertainment Co. are continuing in Sydney this week with Nine’s private equity owners looking to restructure nearly $4 billion worth of debt.

The worst case scenario could ultimately lead to bankruptcy for Nine, but observers note it isn’t in anybody’s interests for that to occur.

Nine’s chairman Peter Bush and chief executive David Gyngell are understood to have hosted two days of talks in Sydney.

Last night lenders approved Nine’s sale of ACP magazines to Germany’s Bauer Media group, believed to be around $525m. The deal still needs the approval of the Foreign Investment Board.

”It’s one box ticked on a very long list before this is all resolved,” a source told Fairfax. ”This was a bit of a formality, but at least we are heading down the right path.”

Private equity firm CVC Asia Pacific, which paid James Packer $1.46 billion cash for the company and took on $3.6 billion in debt has since lost the $2 billion it injected into Nine. It is attempting to push out its debt repayments among its financiers, who are mostly made up of hedge funds.

CVC must repay $2.8 billion of debt by February and a further $1 billion a year later, but a breach of its quarterly debt covenants could trigger immediate payment of all the debt, according to Nine’s financial accounts. CVC managing partner Adrian MacKenzie quit last week after 17 years with the company.

Goldman Sachs manages $1.1bn of debt and the US distressed debt funds Apollo and Oaktree holds more than $1bn of senior debt.

The Australian Financial Review reports Goldman has argued that the sale of the magazines business makes Nine a more attractive and valuable proposition and therefore it deserves a 30 per cent stake in the new Nine.

Sources close to the talks told The Australian that the talks were “progressive” but both parties were no closer to saving Nine from bankruptcy.

Sending Nine Entertainment into receivership would put at risk vital sports contracts including the record $1.1 billion deal with the NRL.

Thankfully for Nine it has a more buoyant outlook as a broadcaster in 2012 than it did twelve months ago. The Voice, The Block, Big Brother, Howzat have all performed well and the network is likely to win the year in the key demos. However the February refinancing deadline is also an awkward time given it is the start of a new television year and optimism is crucial.

If Nine does enter bankruptcy it wouldn’t be the first time an Australian network has hit such lows. Nor would it mean the network suddenly ceases to broadcast.

In 1990, both Network TEN and the Seven Network filed for receivership. TEN was eventually sold to Canwest in Canada. Seven’s woes were tied to the Christopher Skase-led Qintex group making a failed $1.5b bid for MGM Studios.

Source: The Age, The Australian, Australian Financial ReviewDaily Telegraph

34 Responses

  1. Good read Pertinax,
    While no-one could have predicted the global financial crash, I’m still amazed that CVC’s due diligence didn’t pick up that HDRs were likely to take off (Tivos were already hugely popular in the US by then, and making inroads elsewhere), or that multi channels were likely to come into being too, other countries already had loads by then.
    Then again, it took a long time for the commercial networks to realise that the internet is hurting their ratings so I shouldn’t be too surprised. In fact some would argue that they still don’t realise it.

  2. MJL:You must have read the figures the wrong way around.The NRL Footy Show has rated very poor the last 2 years.Axing the show won’t solve the overall issue but it’s a start,of many changes that have to be made

  3. @Pertinax – Awesome response. It sums up the business side of the debacle.

    The thing is… at no point has anyone suggested that Nine Entertainment co are not profitable.

    The problem is they are not profitable enough to support the debt placed onto its bottom line by the private equity partners.

  4. CVC, the hedge fund, that bought Nine has pretty much lost its $2b. Goldman Sachs are offering them 3% of equity if they back their plan. They did do due diligence but before cheap HDRs came on the market, mulit-channeling started, consumers stopped spending so advertising rates plummeted and the cost of debt skyrocketed with the North Atlantic Credit crisis.

    Apollo and Oaktree are hedge funds who bought the debt from the banks cheap and are calling the shots. They are currently offering Goldman Sachs and its clients and CVC nothing and trying to take 100% of Nine in exchange for their debt.

    Goldman Sachs and CVC thus will not agree to proposed deals and have nothing to lose from receivership. The question is how much Apollo and Oaktree will give up to avoid receivership at the last minute. They have about a month. In the mean time CVC will flog off as much of Nine as possible in increase its value of the TV business so that the second tier debt of GS is worth something (in exchange for GS giving them some crumbs).

    The NRL aren’t stupid. They asked for the first year’s installment from Nine as cash up front. If Nine doesn’t make future payments the contract is terminated and the NRL shops the rights to Seven or Ten for 2014.

  5. @Phillo – Thanks for mentioning that, I’d forgotten that there was more to the sale than just the TV network. I agree though, even with the other businesses included, the sale was still hugely overvalued.

    @Aurora – Even after the GFC is taken into account it’s still hard to justify why Nine in 2007 was deemed to be worth so much more (even with all the other businesses) than Channel 5 in 2010.

  6. Why not face the inevitable and put the company into receivership? Make the greedy hedge fund guys who made the huge error of massively overvaluing the network face up to their mistake and absorb the loss instead of trying to restructure the debt? No-one will agree to it anyway. That way Nine could get out from under this crippling debt burden and get back to the business of running a FTA TV network.

  7. To David Knox#

    I udnerstood where your coming from. I do have to quickly say if permited. Channel 9 should stop always with the “all new programes” constanttly every month i recall. They going bankrupt… they need to save money they need to low the programes down. Not just over load everything. By the time you know it they will be bankrupt in which they will end up having less programes to watch. Thanks

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