http://www.theaustralian.com.au/bus...s-cvc-pulls-back/story-fn91v9q3-1226223394692
US funds ponder move on Nine as CVC pulls back
by: Richard Gluyas
From: The Australian
December 16, 2011 12:00AM
DISTRESSED debt funds Apollo and Oaktree are set to bid for control of Nine Entertainment early next year through a substantial debt-for-equity swap that would crystallise heavy losses for Nine's private equity owner CVC Asia Pacific.
The giant US funds, which have bought about $1 billion of Nine's $2.7bn in senior debt on the secondary market, signalled their intentions yesterday after CVC pulled the plug on a second proposal to restructure the media company's crippling debt load.
A source said it was "extraordinary" that CVC had avoided the funds and approached only Nine's original par lenders with its proposal to split the senior debt into two tranches and stretch maturities until 2017.
"It's clearly not in the interests of Nine for CVC to continue its game of brinkmanship to preserve some optionality over its $1.9bn in equity," he said.
"So Apollo and Oaktree will move to generate their own proposal to fix the Nine business that will involve a material compromise of the whole or part of Nine's debt."
Rec Coverage 28 Day pass
It is understood that Apollo and Oaktree will work through the Christmas and new year break to present a proposal to all Nine stakeholders early next year.
With the senior debt trading in the range of 82c-87c in the dollar, the proposal will assume that CVC's equity has effectively been lost, and that $975 million in mezzanine debt held by a Goldman Sachs fund is in a similar position.
The funds, however, are likely to offer some value to CVC and Goldman in the hope of securing a smooth transition.
"Apollo and Oaktree are absolutely committed to the Nine business, its management team and stabilising the situation," the source said.
Yesterday's dramatic developments involving Apollo and Oaktree followed CVC's abandonment of its second restructuring proposal.
The private equity firm had little choice, after hedge funds and distressed debt funds snapped up about 60 per cent of Nine's original bank debt in secondary market trading in recent weeks.
A source said CVC would not be presenting any more proposals before Christmas.
"Things will settle in for a while and Nine will continue to pay interest on its debt," the source said.
Under the second CVC proposal, the first $1.8bn tranche of debt would have been held by Nine's original lenders, which would have received a fee and a higher interest rate in return for extending the maturity date from 2013 to 2017.
A further $900m of senior debt held by hedge funds would have been exchanged for high-yielding warrants also maturing in 2017.
CVC issued a statement last week saying that Nine's senior debt matured in February 2013 and there was "no current requirement" to refinance ahead of that date. Nine, further, was not in breach of any of its financial covenants.
But a hedge fund representative said pressure was intensifying on CVC. "These restructurings take time to implement, so if it comes to June next year and there is no proposal to fix things, the Nine board will be starting to get a bit jumpy," he said.
