CVC Asia Pacific will see a A$1.9bn (US$1.96bn) equity investment in Nine Entertainment all but wiped out under a restructuring proposal that would see lenders take control of the indebted Australian media group.
If the deal can be reached it will crystallise one of the largest losses for a private equity firm in a single deal. CVC bought Nine from billionaire James Packer for A$5.6bn between 2006 and 2008.
The plan to swap Nine’s A$3.75bn of debt into equity was put to Nine’s lenders, which include distressed debt hedge funds Oaktree Capital and Apollo Global Management, late on Sunday night. It is the first time CVC has acknowledged the possibility of losing control of the broadcaster.
Under the proposal, senior lenders owed A$2.75bn would emerge with a 70 per cent stake in Nine, while funds controlled by Goldman Sachs would swap A$1bn of mezzanine debt for a 30 per cent stake, with a small portion set aside for CVC. Nine would retain A$1.25bn of debt through a new five-year lending facility.
CVC and Goldman Sachs, which put together the proposal, declined to comment.
The situation at Nine has been brought to a head by a February 2013 deadline to repay the senior debt owed to banks and hedge funds. The company is also facing a covenant test on its loans at the end of the month, which it is likely to fail. That could deliver control of Nine to the senior debt holders unless they grant a waiver.
“There’s a proposal on the table. Now it’s up to the senior debt holders to engage,” said one person familiar with the negotiations.
“There are only three certainties now for Nine: bankruptcy, a debt-for-equity swap, or someone tips some money into the company,” the person said.
CVC and Goldman have not given up hope of finding an investor prepared to take an equity stake. A number of the factors holding back a potential deal have been solved, according to people familiar with the matter.
Nine recently announced a deal to sell ACP, its magazine arm, German publisher Bauer for A$525m, the proceeds of which will go towards paying down A$2.75bn of senior debt. It has also secured the 2013-17 broadcast rights for the National Rugby League in Australia and ratings have been good.
Harry Sloan, the Hollywood film producer, and WIN Corporation founder Bruce Gordon are among the parties that have considered making an offer for Nine.
The Goldman proposal values Nine at A$2.6bn, or 10 times prospective earnings before interest, tax, depreciation and amortisation, which will fall to about A$260m this year if the sale of ACP is approved. That is a slight premium to Ten Networks Holdings, the media group chaired by Lachlan Murdoch, which has suffered a large slide in rating this year and has lost advertising market share.
“I’m not sure you can compare the two businesses. Nine is trading well. Ten isn’t but is priced for a recovery in earnings,” cautioned one banker.
It is not clear how Oaktree and Apollo, which are thought to control more than half of Nine’s senior debt, will react to the proposal. They may balk at Goldman’s request for a 30 per cent stake and plans to leave Nine with A$1.25bn of debt.
“Things have finally kicked off which is what we have been trying to do for awhile,” said another person briefed on the proposal. “But there’s a long way to go.”
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