Ten shareholders to vote on billionaire-backed loan

Rescue plan: Lachlan Murdoch and James Packer join billionaire Bruce Gordon in a plan to guarantee a “covenant lite” loan for the Ten Network. Photo: Rob HomerTen risks breaching its debt covenants if shareholders do not approve a deal that could hand security over all of the media group’s assets to three of its billionaire shareholders, James Packer, Lachlan Murdoch and Bruce Gordon, in return for the three guaranteeing its new $200 million loan.
Nanjing Night Net

A covenant breach could lead to another highly dilutive capital raising if the “covenant lite” loan is not approved at its December 18 shareholders meeting.

“Given current operating conditions and recent performance, there is no guarantee that Ten will be able to meet covenants,” the company said in its notice of meeting, which was released on Monday.

In the company’s annual review, which was also published on Monday, Ten chairman Lachlan Murdoch said: “The outlook for the media sector remains challenging”. Advertising bookings remained short and the outlook for advertising was “uncertain”.

The media group’s independent expert, Deloitte, said the transaction – which could cost the company up to $43.8 million in interest costs to its lender, Commonwealth Bank, and fees to the guarantors – was fair and reasonable to shareholders not involved in the transaction.

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

The fee may rise if the company’s debt breaches certain ratios but could cease earlier if earnings improve to the point that the company can arrange a less onerous loan.

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 10 days leading up to the company shareholders meeting next month.

Ten has said Australia’s richest person, Gina Rinehart, has indicated she will vote her 9.9 per cent stake in approval of the transaction, which she declined to be involved with.

The guarantor shareholders will not be able to vote their combined 32.8 per cent stake on the proposed transaction.

The transaction will free Ten of loan covenants that are preventing it from 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 Ten’s 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 meeting.

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

At the meeting next month, shareholders are also being asked to approve the issue of up to 50 million shares to chief executive Hamish McLennan under its executive incentive share plan.

Ten’s shareholders will be asked to approve an incentive plan for Mr McLennan.

The long term incentive component, worth up to $1.48 million a year, will be awarded to him each year in the form of loan-funded shares in Ten with the value of these options based on the share price on issue and “potential volatility of the company’s shares over the life of the loan”.

Any dividend will be paid to Ten as interest on the loan, which is effectively non-recourse to Mr McLennan. Ten is responsible for the debt if the incentive shares are below the market price.

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