Nine to stay on the air despite debt woes

Updated October 16, 2012 13:10:00

Talks are continuing to broker a solution to the multi-billion dollar debt crisis engulfing the Nine Entertainment group. The media giant, which controls the Nine television network, is on the brink of receivership unless a battle between its key lenders over a 3.3 billion dollar debt is resolved in the coming days.

Source: The World Today | Duration: 5min 33sec

Topics: company-news, media, takeovers, sydney-2000


ELEANOR HALL: But first to the talks underway this lunchtime over the future of the Nine Entertainment Group, which includes the once dominant Nine television network.

A meeting with its creditors today could see the company go into receivership unless a deal is struck.

The Nine management team is trying to broker a solution to the multi-billion dollar debt crisis engulfing the media group.

Its key lenders are in dispute and while analysts say there is no imminent threat of the Nine television network going off air, there is a threat it could be carved up unless the debt load is restructured.

Business editor Peter Ryan has been following the unfolding financial drama and he joins us now.

ELEANOR HALL: So Peter why are today's talks in Sydney so critical to Nine's survival?

PETER RYAN: Well Eleanor these talks are indeed a drama, something that you might expect to see on the Nine network, and this morning we're seeing the crescendo of this financial stand-off that really has been going on for months.

On one side of the table this morning at the law firm Gilbert & Tobin are representatives from the US hedge funds Apollo and Oaktree who hold the lion's share of Nine's debt. There are also around about 70 smaller lenders.

On the other side are holders of what's known as mezzanine or secondary debt - Goldman Sachs and CVC Asia Pacific, which is a big private equity fund. Their lower ranked creditors is owed about $1 billion.

Now this fight is over the divvying up in the trade of debt in the company for equity in Nine - the big hedge fund players want as much as possible, the smaller group, Goldman Sachs wants 7.5 per cent of equity, that's down from a much bigger earlier bid of around about 30 per cent.

And right in the middle of this table is Nine's chairman Peter Bush and chief executive David Gyngell. They are understandably desperate to see a deal brokered on the debt to ensure the company's key assets, such as the Nine television network, can continue to operate without concerns about its solvency or ability to repay debts.

ELEANOR HALL: So given what's at stake, how likely is it that the CEO and the MD won't be able to get a deal on this today and that Channel Nine will in fact go into receivership?

PETER RYAN: It's shaping up as a very big possibility Eleanor, but firstly, the players in the poker game have played down the possibility of Nine going off the air, they believe that is a "remote" scenario and have rejected some of the dramatic speculation that's been around in recent days.

The more likely scenario is that there could be a straight-forward change of ownership and those with long memories might recall Kerry Packer sold the Nine Network to Alan Bond in the late 1980s for a billion dollars and then Mr Packer bought it back a few years later for just $200 million when it was in trouble.

So these things have happened before. But the media analyst Mark McDonnell of BBY says, if the talks fail, Nine could be handed over to receivers to be carved up.

MARK MCDONNELL: Well presumably if that were to happen the administrators would set about establishing definitively if the business was solvent, if it could continue as a going concern in the immediate weeks ahead.

It would be business as usual but effectively under a constrained management. I think that's a fairly extreme step, I think it's really there as a reminder to the parties that that's a possibility if no agreement is reached.

ELEANOR HALL: That's the media analyst Mark McDonnell.

And as Kerry Packer so famously said of that deal, you only get one Alan Bond. I mean the Nine Entertainment network has a prestigious reputation going back many years. How did it get into this mess?

PETER RYAN: Well put simply, the private equity firm CVC Asia Pacific paid way too much for Nine back in 2006 when it snapped up James Packer's stake for more than $4 billion. James Packer would well be thinking that CVC was his Alan Bond.

Since then, we've had the global financial crisis, media asset's values have plunged, advertising revenue has evaporated and financiers are understandably much more cautious about who they lend to.

This reached fever pitch recently given that a key debt deadline is looming in February next year and ahead of that, the lenders want to know if they'll be paid back on time and what slice of whatever remaining pie they'll get if there's a debt default.

And on that front, it's not surprising that the Apollo and Oaktree hedge funds have enlisted the insolvency group KordaMentha earlier this year, best known for the administration of Ansett and currently Gunns in Tasmania, just in case a carve up of Nine is required.

ELEANOR HALL: So Peter, what impact would any break-up have on Channel Nine, on the television network?

PETER RYAN: At the moment it's business as usual, for example Nine Entertainment recently sold off its publishing division to a German company, that includes big titles like the Women's Weekly, which makes a lot of money, so little has changed. That's all in the interests of the investors.

But the big worry is the reputation of Nine, especially when it comes to programming deals such as drama and sport, given that they have the NRL.

These are of course critical to ratings and advertising revenue and international debt deals could be heard of, there's a perception about solvency and of course on the local front, smaller service providers are most likely calling Nine's accounts department, just to get confirmation that outstanding bills are being settled while this drama drags on.
