Endemol CEO challenged over buybacks
Reality producer is not in danger of breaching debt covenantsLONDON -- Reality producer Endemol is not in danger of breaching its debt covenants, sources close to the company said Monday, despite reports of shareholder unrest over the practice of debt buybacks.
A group of hedge funds owning around 20% of Endemol's senior debt are challenging Endemol CEO Ynon Kreiz's decision to buy back Endemol debt -- which is trading at a discount to its original price -- in order to cut its borrowings.
Centerbridge, Golden Tree and Sankaty Advisors argue that the practice of booking the profit from the buyback transaction as revenue amounts to financial engineering that masks the company's operational performance.
The companies remained locked in discussion with Endemol Monday, but sources close to the "Big Brother" producer said the company had received a "range of advice" that its activities were not outside the terms of its debt agreements.
"This is a technical issue that we are working to resolve to everyone's satisfaction," the source said. Endemol is thought to have made around $110 million from debt buybacks.
Since taking over private equity-backed Endemol in 2008, Kreiz has mounted an ambitious series of landgrabs, including the full ownership of Australian drama producer Southern Star and most recently the acquisition of respected U.K. indies Tiger Aspect and Darlow Smithson.
"With or without these gains we would not be in breach of our debt covenants," the source added, stressing that Endemol's liquidity position was "strong."
"You can see that from the Tiger acquisition and from the debt buybacks themselves."
Endemol was acquired in 2007 for 2.2 billion Euros ($3 billion) by a trio of shareholders including Goldman Sachs, Cyrte Investments and Italy's Mediaset.