Lenders baulk at rescue plan for Nine
Nine owes its creditors close to $3.4 billion. A "senior lenders" agreement covering $2.24 billion of that debt will expire on February 7. According to a submission tendered in the Federal Court on Monday, "the company will almost certainly not be able to repay the total sum which falls due on that date".
The Federal Court heard that Nine had negotiated an agreement with some of its senior and subordinated beneficiaries whereby, via a scheme of arrangement, its $3.4 billion debt will be assigned to an entity called "Nine Holdings" and then waived, in consideration for new shares in Nine Holdings and cash payments.
The scheme is conditional upon Nine Holdings adopting a new constitution. If approved, the scheme will confer new legal rights upon two groups of senior beneficiaries - Oaktree Capital Management and Apollo - that will not be conferred upon the other senior beneficiaries.
That means Oaktree and Apollo will have additional legal rights to "board representation and corporate control" of Nine Holdings.
But a group of Nine's secured lenders - including GE Capital Finance, National Australia Bank and Royal Bank of Scotland - have told the Federal Court they were not involved in the negotiations.
The group opposes the proposed scheme of arrangement, saying it would grant veto power rights to Oaktree and Apollo.
In financial reports released to the corporate regulator last week, Nine confirmed its dire financial condition over the past year, which included a $783 million write-down on the value of its media assets.
Most of the write-down related to the falling value of the Nine network's broadcast licence. The company recorded asset impairments totalling more than $1.5 billion over the past two financial years.
These write-downs did not have an impact on the company's underlying financial performance, but the report shows how badly the business struggled under debt load that threatened to sink Nine.
Frequently Asked Questions about this Article…
Nine Entertainment Group owes close to $3.4 billion and faces a pressing repayment deadline: a senior lenders agreement covering $2.24 billion of that debt is due to expire on February 7. A submission to the Federal Court said the company will almost certainly not be able to repay the total sum falling due on that date.
The proposed scheme would assign Nine’s $3.4 billion debt to a new entity called Nine Holdings, and then have that debt waived in exchange for new shares in Nine Holdings and cash payments. The scheme is conditional on Nine Holdings adopting a new constitution.
If the scheme is approved and the new constitution adopted, two groups of senior beneficiaries — Oaktree Capital Management and Apollo — would receive additional legal rights, including rights to board representation and greater corporate control of Nine Holdings that other senior beneficiaries would not receive.
A group of secured lenders, including GE Capital Finance, National Australia Bank and the Royal Bank of Scotland, told the Federal Court they were not involved in the negotiations and oppose the proposed scheme. They say it would grant veto power and extra rights to Oaktree and Apollo that they were not party to.
The company may be unable to repay the sum falling due under the senior lenders agreement when it expires on February 7, creating an urgent refinancing or restructuring need. That deadline is a central driver of the proposed scheme of arrangement.
Nine reported a $783 million write-down on the value of its media assets, most of which related to a falling value of the Nine network’s broadcast licence. The company recorded asset impairments totaling more than $1.5 billion over the past two financial years. The reports said these write-downs didn’t affect underlying operating performance but highlighted how the business has struggled under its heavy debt load.
Under the plan described in court, creditors would receive new shares in Nine Holdings and cash payments in exchange for waiving debt. For everyday investors, that implies a change in the company’s capital structure and potentially new major shareholders and board members (notably Oaktree and Apollo), which could alter control and future strategy.
Investors should note the urgent debt deadline, the proposed scheme that could transfer control rights to Oaktree and Apollo, and the fact that some major secured lenders (GE Capital Finance, NAB, RBS) oppose the plan. Combined with large recent asset write-downs, these factors create short-term uncertainty about ownership, governance and the company’s financial stability.
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