Loans to fuel Premiere rescue

News Corp. helps German pay TV operator get $734 mil for restructuring

Just in time for Christmas, News Corp. finally has unveiled its rescue plan for long-suffering German pay TV operation Premiere.

On Tuesday, the company took the wraps off a major debt restructuring and capital increases intended to provide CEO Mark Williams with the wiggle room necessary to bring Premiere back to profitability by 2011.

Premiere and News Corp. have negotiated long-term loans totaling €525 million ($734 million) with Premiere's bank consortium. The loans, a €275 million ($385 million) term loan and a €250 million ($350 million) revolving facility that run through 2013, are conditional on Premiere raising €450 million ($629 million) through the issue of new shares.

Premiere will begin next month, issuing as many as 10.2 million shares to raise a minimum of €25 million ($35 million). News Corp. will pick up any unsold stock as long as its total stake does not exceed 29.9%. The consortium will match the capital increase with a short-term loan of as much as €25 million ($35 million).

The €50 million ($70 million) boost is intended to cover Premiere's immediate expenses until the second share issue, scheduled for the second quarter, which is the core of Williams' rescue plan.

News Corp.'s backstop of buying unsold Premiere shares is conditional on a guarantee that Premiere can access the loans and an exemption from a requirement under German law that would force News Corp. to make a buyout offer to minority shareholders if its stake in Premiere exceeds 30%.

Provided Premiere shareholders approve the plan early next year, Williams will have the capital to carry out his restructuring of the company. His strategy is to bring Premiere's money-losing business model more in line with News Corp.'s successful operations in the U.K. (British Sky Broadcasting) and Italy (Sky Italia). Core elements of the strategy include focusing on long-term, premium customers and increasing the amount and diversity of programming offered.

The restructuring will force Premiere into the red, with a negative cash flow of €250 million-€275 million ($350 million- $385 million) and a "significant" operating loss expected for 2009. Williams is forecasting a break-even in 2010 and profit by 2011.

For this year, Premiere expects an EBITDA loss of €40 million-€60 million ($56 million-$84 million) and net debt of €320 million ($447 million).

Premiere shares dropped 4% on the news Tuesday and were trading just above €4 ($5.60). (partialdiff)