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Incisive Media lenders were presented on Wednesday (12 August) with a cash-out alternative from CIG, a newly-established media group acquisition vehicle, two sources familiar with the situation told Debtwire. However, the SPAC abruptly changed course today, announcing talks between itself and the UK-based media group had now terminated.
CIG listed on AIM at the end of June, and is embarking on a GBP 1bn acquisition spree of media assets funded by institutional investors and ex-Informa heavyweights, according to recent company statements.
The decision to pull out took Incisive Media lenders by surprise, as the banking syndicate had yet to vote upon the proposal, said the sources. The special purpose acquisition company (SPAC) offered Incisive Media’s senior lenders a 45% cash payment plus a 5% plus deferred element and 10% equity in the new vehicle – currently a shell holding GBP 3m, said the sources.
”The recovery value was linked to whatever assets are subsequently acquired, lenders’ equity would be diluted following each purchase, but this could end up as a significant media group,” said the first source. The expected recovery range is around 50%-70%, the top end is comparable to that under the lender-led plan, he explained.
“It’s a nice idea ... offering money upfront has attractions,” said the second source.
Incisive Media lenders were asked to decide whether to explore the CIG proposal further or continue with their own term sheet, said the sources. A response should be delivered in the next few days. Incumbent sponsor Apax, has not returned to the fray, after its revised proposal was rejected last month and as it will only retain 2% of equity in the UK-based B2B information provider under the lender-led plan.
Under their plan, senior lenders would agree to take a GBP 64m haircut, bringing total indebtedness down to GBP 110m. The new debt structure will include a GBP 65m 4.5-year TLA paying Libor+ 260bps cash, and a GBP 45m 4.5-year TLB paying L+ 600bps PIK.
A super-senior revolver to fund liquidity needs is expected to carry a 260bps margin. In return, senior lenders would receive 82.5% equity in the company, mezzanine lenders 5%, management 10% and Apax Partners 2%, as reported. New leverage will be around 11x based on estimated 2009 EBITDA of approximately GBP 10m.
Management value
Under management’s revised business plan, the group’s value is expected to rise to GBP 140m to GBP 180m in four years. Management’s 10% equity stake could grow by an additional 15% to 25% if the senior’s targets are met, said the first source.
One stumbling block to the CIG offer was the lack of equity on offer to management [currently with 10%], commented the first source. Ex-Informa management are expected to take their places. “Junior management are closely aligned to incumbent management. Media businesses are reliant on key staff - the value of the business could walk out of the door with them.”
Lenders were set to respond to CIG’s offer by early next week. Once let in, CIG needed around six to eight weeks to finalise their proposal, noted the sources. ”Their deal was scheduled to complete in the important fourth quarter – accounting for 75% of revenues – potentially increasing the deal risk,” commented the first source.
Clipping the hedge
Prior to receivng the surprise offer, lenders were set to forge ahead with their own restructuring proposal. The delivery of a term sheet has been held up by negotiations with RBS, the largest holder with 34%, and the agent bank, said the sources. RBS holds hedging agreements with the company and wanted to be repaid in full, or take an initial haircut and recoup their losses with a new facility.
As an alternative, the other bank lenders had offered to provide a cheaper alternative, offering an interest rate cap at 5% for a GBP 1m upfront fee, said the two sources. The dispute has been deferred, with attention diverted to reaching a consensus on the other restructuring terms, they explained.
Incisive Media breached leverage and interest cover covenants at the end of December. The sponsor submitted an informal restructuring plan that was rejected out of hand by lenders. The banking syndicate argued the company’s financial position did not warrant a 50% senior haircut, as reported. The sponsor outlined a revised offer at a bank meeting in early June offering a much lower haircut, but lenders subsequently decided to take control. Apax Partners paid GBP 222.3m for Incisive Media at the end of 2006
According to its website, CIG is a newly incorporated company formed to acquire and consolidate media companies and businesses. In order to gain an AIM quotation, GBP 1.56m was raised in equal proportion across selected UK institutional investors, with a further GBP1.45m invested by CIG Directors. “CIG’s investing activities will focus on B2B media businesses which will be located both in the United Kingdom and overseas, with a particular focus towards businesses involved in publishing and events, in which management has particular experience.”
CIG and Apax declined to comment.Incisive Media did not respond to requests for comment.
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