PBL Media’s banks have agreed to bail it out by agreeing to the recap plans put forward by CVC, the private equity group and controlling owner.
The recapitalisation will cut the 25% stake of James Packer’s Consolidated Media Holdings in PBL to less than 1%.
Investors took a dislike to Cons Media shares yesterday and sold them off by more than 7%.
They closed at $1.94 ahead of the statement from PBL Media which came after trading had finished for the day.
A reported 80% of the lenders of senior debt endorsed the recap proposal.
The company had needed 66.67% approval. The deal also got the backing for its mezzanine debt, most of which is provided by US investment bank, Goldman Sachs through its private equity offshoot.
PBL Media CEO, Ian Law said in a statement that "the great thing about the revised financial structure is we are now in a position to withstand a severe recession, should that eventuate, and we will not have an issue with our financing”.
Under the plan negotiated since late November, PBL Media’s private equity owner CVC Asia Pacific will inject $325 million (plus $10 million in fees) into the business by the end of the month to repay debt and give up an additional $110 million of PBL Media’s unused credit facilities.
The deal will drop PBL’s debt to $3.8 billion, with no need to refinance before 2013.
PBL Media will also see its lending conditions relaxed for up to two years, having to only meet a cash flow ratio to service the interest on its debt, with two other debt covenants suspended, including the one on earnings which Merrill Lynch reckons might be in doubt in 2010.
"With our amended covenants and longer-dated debt, the reality is we now have more financial resilience than many listed companies that have a lower level of gearing,” Mr Law said. "The perceived ‘indebtedness’ issue has now been finally resolved for PBL Media.”
Judging by reports around town in Sydney, it was a down to the wire negotiation.
Helping PBL Media was the parallel but unconnected talks between Centro Properties and Centro Retail over a big extension of their $4 billion plus in loan facilities held by Australian and US banks. That expired on Monday.
Allowing both to go to the wall would have added well over $A10 billion in non-performing debt to a string of banks here and around the world, including the Commonwealth, the NAB, Goldman Sachs and St George.
CVC was negotiating with its bankers to inject a further $335 million of cash in return for a relaxation of covenants to a minimum 2009 (June 30) EBITDA of $375 million (from $480 million currently) and to $390 million in 2010 from the current $525 million.
Around 7.25% of Consolidated Media changed hands late Monday on the ASX and it is thought that was a position of shares and derivatives built up by a buyer from the US.
The sale is interesting coming before the expiry of the deadline for bank votes on the refinancing offer. It’s been reported the sale was by a hedge fund.
The shares are understood to have gone to three local institutions; one of those is Perpetual which had 8.89% in late November and has been a big buyer of Cons Media shares in recent months.
The Kerry Stokes-controlled Seven Network is believed to be still on its 4.8%.
Brokers Merrill Lynch said in a note to clients yesterday that if the new profit targets in the loan covenants were approved by the banks, then PBL Media would, according to its figuring, be OK next year, but in trouble in 2010.
"If accepted, PBL Media would be ok in FY09 (Merrill Lynch estimate for EBITDA $418m), however FY10 could still see even the more relaxed covenants breached (Merrill Lynch estimate, $380m), in our view.
"CVC has invested $5.2bn in PBL Media: $982m of capital and $3.75bn of debt for a 50% stake in Oct ‘06 and $515m in June ‘07 for a further 25% stake.
If, and this is by no means a certainty, PBL Media’s banks agree to more lenient covenants, we still believe there is a risk CVC would have to put in additional equity above $335m.
"We forecast PBL Media will generate EBITDA of $418m in FY09 and $380m in FY10 (compared to $508m in FY08A), driven largely by:
"Nine network – Revenue declining by -5% in FY09 and -4% in FY10 (in line with our TV ad market decline forecasts);
"ACP Magazines– Revenue falling by -5% in FY09 and -4% in FY10 (compared to our Magazines ad market decline forecasts of -6% and -5%, as ACP’s revenue is partly boosted by new launches);
"However we are concerned that on our estimates PBL Media will only just meet its interest costs of $408m in FY09 (EBITDA $418m) but fail to do so in FY10, with interest costs of $398m and EBITDA of $380m. Note we assume a cost of debt of 9.6% in FY09 and 9.0% in FY10 with average debt levels of $4.27bn and $4.42bn respectively."
Centro appears to have again missed the axe from worried banks and secured an in principle agreement for a major extension of the group’s $6.01 billion debt load.
An agreement was reached late Monday night and a statement was made late yesterday.
Analysts claimed the agreement means the Commonwealth Bank has fallen into line with the other Australian banks about keeping Centro alive.
CBA is the bank that has been taking the hardest line in corporate debt negotiations around the country: it helped pull the plug from Allco and it’s giving OZ Minerals a hard time.
It wanted terms better than the other banks in the Centro lending group wanted and that stymied an early announcement on an agreement.
The debt extension when it is announced is expected to run for several years.
It is a major reprieve for the property group, and an early gift for the Australian economy, given Centro is the second biggest retail landlord in the coun
