Hedge funds owning a chunk of the $2.8 billion debt in Australia’s Nine Entertainment, owned by buyout firm CVC, have prepared a proposal to convert their debt into equity in the TV network, a source told Reuters, in a plan that would wipe out most of CVC’s equity. Nine’s board has declined to meet with the hedge funds, Oaktree Capital and Apollo Global Management, which requested a meeting to put forward the restructuring plan.
Reuters – Hedge funds owning a large chunk of the $2.8 billion debt in Australia’s Nine Entertainment, owned by buyout firm CVC, have prepared a proposal to convert their debt into equity in the TV network, a source told Reuters, in a plan that would wipe out most of CVC’s equity.
Nine’s board has declined to meet with the hedge funds, Oaktree Capital and Apollo Global Management, which requested a meeting to put forward the restructuring plan, the person with knowledge of the situation said.
Oaktree and Apollo hold A$1 billion or about 37 percent of the A$2.7 billion ($2.8 billion) senior debt owed by Nine, part of a group of hedge funds including Och-Ziff which now control 50 to 60 percent of the debt and have the power to block any plan to extend the maturity of the debt.
CVC Capital Partners shelved plans before Christmas to refinance the debt, which falls due in February 2013, as banks sold out of the debt and hedge funds aiming to win control raised their stakes.
A CVC spokesperson on Tuesday declined to comment. CVC said last month that there was no requirement to refinance its senior debt in advance of the maturity date.
Nine Entertainment Co, one of the biggest private-equity owned companies in Australia, has assets including the Channel Nine free-to-air television station, ACP Magazines which publishes the Australian Women’s Weekly, ticketing agency Ticketek and Acer Arena.
Hedge funds have been picking up Nine debt from senior lenders for more than a year and many had hoped to exit through a planned initial public offering, which CVC shelved earlier last year due to volatile markets.
The options for CVC include tipping in more equity, which is seen as unlikely on top of the reported A$1.9 billion already invested in Nine, refinancing the debt, or selling some non-core assets to pay off debt, banking sources have said.
The two sides are at a stand-off, as CVC has said it has plenty of time to work on a refinancing but hedge funds have been piling pressure on Nine’s management to begin a restructuring.
CVC needs 100 percent lender approval to extend the life of the debt and a two-thirds vote to amend covenants.
The source told Reuters that the two hedge funds, Oaktree and Apollo, had worked on the debt-for-equity proposal over the Christmas break, and added that finding a solution to Nine’s debt would become more important once the debt becomes short-term or current in February 2012.
Restructurings in general “take at least six to eight months to sort out, and in some instances it can take years,” the person said, speaking on condition of anonymity because the matter is confidential.
The A$2.6 billion in senior debt is a legacy of A$5.3 billion in cash and debt that CVC used to buy the network from media baron James Packer.
Unless CVC trips over covenants on the debt inside Nine, the hedge funds will find it hard to take control, bankers said.
Negotiations are expected to be protracted.
Before Christmas, CVC had to shelve two proposals for refinancing because of a lack of support among lenders.
CVC had asked lenders to agree to a two-and-a-half year extension on the debt due in February 2013, which represents some 70 percent of Nine’s total debt, hoping it would buy crucial time for Nine’s advertising revenue to improve.
It then cancelled those plans and put forward another proposal to create one tranche of debt for banks and a second class for hedge funds.