National Australia Bank has sold its entire A$86 million ($90 million) exposure in Nine Entertainment, writes Reuters. Nine’s owner, CVC Capital Partners, is fighting to retain control of the business as hedge funds led by Oaktree Capital and Apollo Global Management, circle, says Reuters.
Reuters – National Australia Bank has sold its entire A$86 million ($90 million) exposure in debt-ridden Nine Entertainment at 86 to 87 percent of par value, banking sources familiar with the situation said on Thursday.
Nine’s owner, CVC Capital Partners, is fighting to retain control of the business as hedge funds led by Oaktree Capital and Apollo Global Management, circle.
CVC is weighing options including refinancing, bringing in new investors and asset sales to reduce its A$2.7 billion debt load, which matures in February 2013.
The debt stake was sold in one lot to an investment bank said to be acting as a conduit for a distressed-debt fund, said one of the sources, declining to be identified because the matter was confidential.
NAB’s spokeswoman declined to comment when contacted.
CVC tops the list of Australian private equity firms that loaded up with assets at the top of the market and are increasingly restructuring to keep control of their businesses as economic uncertainty has limited their sale options.
Buyout houses, which make a living buying and selling companies for profit, are under pressure from their investors to return cash from sales, but instead are having to invest more capital and delay returns.
Australia’s IPO market has ground to a halt and corporate buyers are less willing to part with cash because the European debt crisis has led to fresh fears about a global recession.
CVC, which shelved a planned IPO last year, plans to sell Nine’s Events division, including Australia’s largest ticketing agency, Ticketek, and has appointed UBS as adviser, a source told Reuters last week.
Many privately owned firms are likely to be refinanced or restructured this year rather than sold and some will become distressed assets, industry players said on the sidelines of a recent private equity conference.
“These companies were too highly leveraged, the performance is not supporting the debt appropriately and they are finding obligations increasingly difficult to meet,” said one adviser to buyout firms.
Globally, sales by private equity firms dropped 27 percent by value in the fourth quarter of 2011 from the third quarter, according to data by Preqin, an alternative asset research company.
Australian banks are holding A$30.2 billion in total impaired assets on their books, according to Reserve Bank of Australia figures, and impaired assets have been close to that figure for the past 10 quarters.
Some industry executives and bankers say those figures point to more troubled firms coming to light and that the mid-market — firms with an enterprise value between A$250 million and A$1 billion — will be next in focus.
“It will be at the smaller end of the scale. It won’t be as dramatic as the Alintas, the Centros,” said Chris Wyke, managing director at Moelis & Co, which advised on the restructuring of ailing utility Alinta and shopping mall owner Centro.
New Zealand broadcaster MediaWorks, owned by Ironbridge Capital, is currently trying to get a second rescue plan approved by lenders, aiming to foil a proposal by global buyout firm TPG Capital to convert its portion of debt in MediaWorks into equity.
Ironbridge said last week it had agreed to a deal with senior lenders, according to New Zealand media, but a source familiar with the situation told Reuters that TPG, which holds about 20 percent of the senior debt, had not yet agreed to the restructuring.
Ironbridge has proposed injecting NZ$50 million in new funds and repaying a government loan as part of the deal. It bought the media company in 2007 for about NZ$800 million ($654.08 million) and went through a debt restructuring in 2010.
The buyout firm did not return calls for comment.
KKR Australia managing director Justin Reizes says the key for private equity owners is starting out with capital structures that have plenty of headroom in case trading conditions turn sour, as has happened across Australia’s media and retail sectors.
“You have to get (debt) covenants as flexible as you can. You want to get rid of debt-service ratios,” Reizes said at the AVCJ private equity conference last week.
In other cases, the company is not distressed, but the loans backing the takeover were taken out at much cheaper rates and never intended to be refinanced because in normal markets, companies would generally be held for three to five years by a buyout firm before being sold.
That is stretching out to five to seven years as private-equity managers face fewer options for disposals.
“You do need to manage for a longer holding period,” a managing director at a large local buyout firm said.
Pacific Equity Partners (PEP), Australia’s largest private equity firm, is refinancing a NZ$300 million loan for Griffin’s Foods after failing to find a buyer late last year. The loan matures in June, according to Reuters Basis Point.
A sale process drew early interest from international food groups Kellogg, General Mills, Nestle, and China’s Bright Foods, but failed to meet PEP’s price expectations.
PEP is also looking for a strategic partner for its share registry company, Link Group, to expand the business that it has owned since 2005, sources told Reuters.
One banker not directly involved said in more normal markets, PEP might have been expected to proceed with a sale of Link having held the group for seven years.
Ian Johnson, head of one of the few local buyout houses that targets distressed assets, Helmsman Funds Management, says there will be plenty of opportunities for his firm this year, especially in the service industries.
“Bad luck and stupidity are not cyclical,” he says.