Billionaires could gain security over Channel Ten’s assets

Ten’s investors have been asked to approve a deal that could hand security over all the media group’s assets to three of its billionaire shareholders, James Packer, Lachlan Murdoch and Bruce Gordon, in return for the trio guaranteeing its new $200 million loan.
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Ten’s independent expert, Deloitte, has said the transaction – which could cost the company $43.8 million in interest costs to the Commonwealth Bank, and guarantee costs to the guarantors – is fair and reasonable to shareholders not involved in the transaction.

Most of this money would go to the billionaire guarantors who will receive a minimum 3.5 per cent guarantee fee for the life of the four-year loan.

The fee may rise if the company’s debt breaches certain ratios. The fee is also convertible into shares in Ten – at the option of the guarantors when the loan ends – with a strike price based on the average share price in the days before the shareholder meeting next month.

Ten has said that Gina Rinehart, Australia’s richest person, has indicated she will vote in favour of the transaction which she declined to be involved with.

The transaction will free Ten of loan covenants which are preventing it investing in programming at a time when its ratings are at record lows.

“Without these covenants, Ten will have greater capacity to pursue its programming and turnaround strategies during this period of depressed and potentially volatile earnings,” said David Gordon who heads the independent board committee that dealt with the directors providing the guarantees.

Commonwealth Bank will take security over Ten’s assets and earnings in return for its “covenant-lite” loan. But if Ten is in breach of its loans and the guarantors are forced to act, the security over the assets passes to these guarantor shareholders.

“This may lead to the shareholder guarantors having the right to enforce that security and appoint a receiver which may conduct a sale of Ten group assets in which the shareholder guarantors may participate,” the company said in the explanatory notes to the notice of meeting.

This week, News Corp denied reports that its chairman, Rupert Murdoch, spoke to the government “about the possibility of acquiring the Ten Network”.

At the meeting,shareholders will be asked to approve the issue of up to 50 million shares to chief executive Hamish McLennan under the company’s executive incentive share plan.

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