Ten risks loan breach without billionaire deal

Ten risks breaching its debt covenants if shareholders do not approve a deal that could hand security over all its assets to three of its billionaire shareholders, James Packer, Lachlan Murdoch and Bruce Gordon, in return for them guaranteeing its new $200 million loan.

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, also released on Monday, Ten chairman Lachlan Murdoch said: "The outlook for the media sector remains challenging." Advertising bookings remain short and the outlook for the advertising market "remains uncertain".

The media group's independent expert, Deloitte, has 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 - is 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 shareholders meeting.

Ten said Australia's richest person, Gina Rinehart, indicated she would vote her 9.9 per cent stake to approve 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 in Ten on the proposed transaction, which will free the network 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 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.

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