Australia's Nine Entertainment in Crisis Talks With Lenders to Avoid Insolvency

The Nine Network and other businesses are threatened if the company can't restructure $3.2 billion worth of debt in negotiations with U.S. hedge funds.

SYDNEY - The fate of Australia’s iconic 56-year-old commercial TV broadcaster Nine Network, the nation's second-ranked commercial network, was hanging in the balance Tuesday night local time as discussions between parent company Nine Entertainment, owned by CVC Asia Pacific, and its major debt holders continued in a bid to restructure Nine’s AUS$3.2 billion ($3.3 billion) worth of debt.

The main lenders are U.S. hedge funds Oaktree Capital and Apollo Global Management, with Goldman Sachs serving as a minority lender.

Nine Entertainment Co. chair Peter Bush and CEO David Gyngell warned this week that if a deal could not be reached on a debt restructuring, the company may be placed into administration, which would essentially acknowledge that it is insolvent. Nine’s earnings currently won’t cover its debt, repayment for which is due in February.

Business paper the Australian Financial Review reported Tuesday afternoon that the lenders have moved closer to an agreement on a debt-for-equity deal, in which the two hedge funds and Goldman Sachs would take stakes in the broadcaster.

Gyngell told reporters during a break in the meetings that ‘‘I think we’ll have some sort of outcome to discuss’’ whether good or bad. ‘‘It’s been a vigorous debate around valuation’."

Nine’s $500 million output deal with Warner Bros., which expires in 2014, will likely fall by the wayside if the company is broken up.

Last week, Goldman Sachs agreed to swap its mezzanine debt for a 7.5 percent stake in the company and a further 12.5 percent stake if the broadcaster is sold for more than $2.3 billion. Goldman Sachs said it accepted the deal to keep Nine going as a business.

“Goldman Sachs Mezzanine Partners understands the importance of keeping this iconic Australian broadcaster out of administration and is supporting the Nine board and management,” the investment bank said in a statement then. "Administration" is a concept similar to Chapter 11 bankruptcy in the U.S., which allows a company to continue operating while it addresses its debt issues.

Apollo Global Management  and Oaktree Capital hold more than $1 billion of senior debt in Nine. CVC Asia Pacific bought Nine for $5.3 billion in 2007 and is expected to lose its $1.8 billion in current equity - the largest ever loss on a single private equity deal in Australia.

Nine Entertainment is made up of the Nine television network, Australia’s second-ranked commercial broadcaster, Mi9 – an online joint venture with Microsoft, ticketing business Ticketek, Allphones Arena, and a stake in Sky News Australia. Last month, Nine sold off its publishing division, ACP Magazines, to German based Bauer Media for $500 million, which went towards paying down some of the debt.

Sky News reported Tuesday that the National Rugby League (NRL) said its $1 billion broadcast rights contract, signed with the network and pay TV provider Fox Sports in August, was not affected by the debt crisis.

"The issues that Nine needed to address in terms of its funding were something that were discussed during the negotiation process," NRL media and communications director John Brady said. "It's not unexpected that they have to go through this issue."

The news for Nine television, however, is not all bad. Nine will finish the 2012 ratings year in late November with an increased overall audience share thanks to the success this year of top-rated reality franchises like The Block and The Voice, as well as local dramas Underbelly Badness and House Husbands.

Monthly ad revenue figures released Monday showed that market leader, the Seven Network, saw ad revenue rise 12.9 percent to $103 million in September, taking the company to a  share of 43.9 percent of overall revenue. Nine jumped 6.1 percent to $84.5 million, bringing it up to 35.8 percent.

Analysts warn that if the company was placed into administration, advertising rates would likely be discounted, eroding its revenue base.