Australia's heavily indebted Nine television network, owned by private equity firm CVC Capital Partners, sold its ACP Magazines division for around A$500 million ($512 million) with the proceeds going to pay down debt, Nine said on Tuesday.
The sale, to privately owned German publishers Bauer, could lead to refinancing talks between Nine's creditors and CVC, which still faces a possible A$1.8 billion loss on its original investment in the Australian television network.
That would be the biggest loss for any private equity firm on a single deal in the Asian region, a s the entertainment company risks a breach of debt covenants this month that could force it into the hands of its lenders.
CVC paid A$5.3 billion in cash and debt for Nine at the peak of the buyout boom between 2006 and 2008, overloading on cheap debt just before the financial crisis hit.
But the Australian media landscape has changed radically and advertising revenues have since collapsed across the sector, as viewers and readers in developed markets worldwide move online.
Television and newspaper profits have been slashed, forcing A$6 billion dollars' worth of writedowns for listed firms in the fiscal 2012 reporting season that ended last week.
Nine Entertainment said on its part-owned ninemsn website that it sold ACP magazines to Bauer, giving the Hamburg-based publisher 110 new titles including Australia's Rolling Stone, the Australian Women's Weekly, Cleo and Cosmopolitan.
The sale will require foreign investment approval from the Australian government.
A slide in earnings at Nine, however, could trigger a breach of debt covenants that would deliver it into the hands of hedge funds and other buyout firms that now own the bulk of its debt, via a debt-for-equity swap that owner CVC is desperately trying to avoid.
"We are working on the assumption that Nine will breach covenants by the Sept. 30 end of quarter," said a banking source familiar with the situation. The person declined to be named because the matter is confidential.
MAGAZINE SALE
The person said Nine has been dipping into a reserve account in recent quarters to meet certain covenants, but the cash account is now depleted and that made a breach of a debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) covenant more likely.
"The (creditors') rights can become a lot more severe if they are in default of debt documents," said another person familiar with the situation.
Nine has A$2.7 billion in senior debt that matures in February 2013, of which about 80 percent is now in the hands of firms including Apollo Global Management and Oaktree Capital Group, which bought debt from original bank lenders on the secondary market.
CVC abandoned two previous proposals to restructure the debt after receiving a tepid response from lenders.
CVC is considering options including asset sales, refinancing the debt, or bringing in new investors.
But because Nine's value has fallen since the buyout and is now likely no more than its debt, any rescue deal will still leave CVC facing the loss of its original A$1.8 billion equity investment, which was spread across four of its funds.
CVC declined to comment.
Nine Entertainment, one of the biggest private-equity owned companies in Australia, also counts among its assets the top-rated Channel Nine free-to-air television station, ticketing agency Ticketek and Acer Arena.
Nine has been trying to sell ACP, which has a 50 percent market share and leading titles, since last year.
CVC has also been trying to secure a cornerstone investor for Nine. U.S. private equity firm TPG considered partnering with Hollywood media executive Harry Sloan to bid for some or all of Nine's assets, sources told Reuters in July.
Rival private equity funds Apollo and Oaktree own around A$1 billion of Nine's senior debt and are pushing to assume ownership of Nine by swapping their debt for equity.
Several other distressed debt and hedge funds including Och-Ziff own a bit over A$1 billion of debt, although they may not all act in concert with Apollo and Oaktree.
Original lenders including General Electric, Rabobank and West LB hold about 20 percent of the debt.
Nine Entertainment's listed rival TV networks have gone cap in hand to shareholders with deeply discounted share issues. Seven West Media and Ten Network, chaired by Lachlan Murdoch, used the cash to help pay down debt.
This article is copyrighted by Reuters
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