Macquarie Media Group has warned that its US-based investment, American Consolidated Media (ACM), may breach its loan covenants.
In a statement to the ASX yesterday, it said that a breach may place at risk MMG’s $US81.2 million book-value investment in ACM, which owns about 100 community newspapers in the US.
Macquarie (MMG) pointed out that the breach was more technical as ACM was repaying debt, and had another debt payment to make in November and would be able to do so from reserves and cash flow.
MMG said discussions were ongoing with ACM’s lenders in relation to amendments to the covenants.
"These discussions are incomplete and there can be no assurance that any amendment or extension will be provided, or that the requested waivers will be provided," MMG said in a statement.
MMG had no plans to provide parent level cash injections or other financial support or guarantee to ACM or its lenders, the company said.
It said ACM comprised less than 17% of MMG’s operating earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to June 30, 2009, and was considered a non-core investment.
MMG had previously warned that ACM might breach loan covenants.
MMG also made sure there would be no money for ACM from the parent, and no chance any problems in ACM would rebound on MMG.
"The ACM Facility is secured only against ACM and ACM’s assets. The MMG parent level entities have not provided any guarantees nor security in favour of ACM or its lenders.
"There are no cross default provisions between the business level bank facility of MMG’s core investment, Macquarie Southern Cross Media Pty Ltd, and the ACM Facility.
"Further and as previously advised, MMG has no plans to provide any parent level cash injections or other financial support or guarantee to ACM or its lenders.
"Discussions are ongoing with ACM’s lenders in relation to ACM’s request for the necessary amendments to the existing covenants and for an extension to the maturity date of the ACM Facility.
"These discussions are incomplete and there can be no assurance that any amendment or extension will be provided, or that the requested waivers will be provided."
But the securities were marked down more than 4%, or 10 cents, to $2.23 at the close yesterday, which halted the recent sharp rally in the stock.
That drew a query from the ASX about the run up in the price of MMG securities in recent days from$1.95 last Friday to $2.25 on Monday.
It was the ASX second price query to the company in a month.
In its reply MMG said:
"Further to Macquarie Media Group’s ("MMG") response to the price query from ASX on 17 September 2009, MMG confirms that it is continuing to review with its manager Macquarie a range of potential structural initiatives which seek to enhance security holder value.
"Those potential initiatives include: internalisation of management; corporatisation into one single listed Australian public company; and an entitlement offering with all of the funds raised and most of the parent level cash on hand applied to pay down Macquarie Southern Cross Media Pty Ltd business level debt.
"To date, no decision has been made by the MMG boards to pursue any particular initiative.
"Evaluation of the potential initiatives is subject to resolution of outstanding commercial and other issues. No assurance can be given that any such initiative will proceed or if it does proceed the terms on which it may occur. MMG would update the market were any such decision to be made.
"In addition, MMG notes that it has today separately updated the market in relation to its expectation of a covenant breach by American Consolidated Media LLC under its business level debt facility.
"No further announcement can be made at this juncture given the incomplete nature of these possible initiatives. A further announcement would be made if the MMG boards resolve to pursue any particular initiative."
