THE rescue of Nine Entertainment remains on track, with the Federal Court ruling on Thursday that opponents of a crucial scheme of arrangement cannot stop the deal.
Justice Peter Jacobson said the scheme of arrangement - which would convert all Nine's debt into equity - could go ahead despite opposition from some senior lenders. He said the proposed plan was the "only opportunity to the company to repay the senior debt". Otherwise it would be "highly likely" the company would be placed in receivership.
Nine owes its creditors almost $3.4 billion. Senior debt totalling $2.24 billion will expire on February 7.
A submission tendered in the Federal Court on Monday said: "The company will almost certainly not be able to repay the total sum which falls due on that date."
A group of senior lenders have opposed the scheme on the grounds that they were not involved in negotiating it and will be disadvantaged if it is implemented.
The opposing lenders include GE Capital, National Australia Bank and Royal Bank of Scotland, which said they "have no desire to become minority shareholders" in an unlisted Nine.
After the restructure, Nine will be controlled by another group of senior lenders led by US hedge funds Apollo and Oaktree, which will have additional legal rights to "board representation and corporate control" of Nine Holdings, the opposing group said in documents lodged with the court.
"In short, the scheme will bestow immediate control of Nine Holdings upon Oaktree and Apollo," the opposing lenders said.
Justice Jacobson said the directorship rights were for one annual meeting only and were still subject to shareholder approval. It did not mean Apollo and Oaktree would not be able to consult with the opposition lenders at the meeting, he said.
Under the scheme, senior lenders will receive 95.5 per cent of the equity in Nine and share $573 million in proceeds from $700 million of fresh debt that will be raised after the restructure. This will effectively allow these lenders to receive cash for 25 per cent of the $2.28 billion of debt they hold. The rest of the cash from the debt raising will remain with Nine as working capital.
Apollo and Oaktree will end up with 37.4 per cent of Nine under the deal. The mezzanine debt holders - led by Goldman Sachs - that are owed more than $1 billion, will receive 3.75 per cent of Nine and a $20 million cash payment. Nine's owner, CVC, will end up with 1 per cent of the media group, having lost close to $2 billion on its investment.
Under the new constitution the Nine board will "use commercially reasonable efforts to effect a listing within 18 months" of the scheme being implemented, but it is not obliged to pursue the listing.
The scheme needs the separate approval of the senior lenders, mezzanine lenders and the owner. The opposing lenders were hoping to be ruled as a separate class of stakeholder from the senior lenders, which meant the scheme would require their separate approval.
The scheme meetings are scheduled to be held on January 21 at Macquarie Group's head office in Sydney. If approved by the three classes of stakeholders, the scheme will then go back to the Federal Court for final approval on January 29.