Oaktree, Apollo win control of CVC's Nine

CVC’s Asian arm has ceded control of Australian media group Nine Entertainment as part of a $3.4bn debt-for-equity swap, which represents the Asia-Pacific region’s biggest ever private equity write-off.

The global financial crisis, a collapse in advertising revenues, a substantial debt load and a loss-making magazine business have all been cited as factors in Nine Entertainment’s failure.

Regardless of the reasons, the stark reality facing CVC Capital Partners and its investors is an A$1.9 billion ($2 billion; €1.5 billion) write-off: the biggest ever in the Asia-Pacific region and one of the biggest globally by a private equity firm.

CVC declined to comment.

On Wednesday, Nine revealed it had reached agreement with its senior and mezzanine lenders to restructure its capital structure. The $3.4 billion debt-for-equity swap is one of the largest in recent times.

We believe this is an outstanding outcome for all stakeholders.  The business has great momentum and strong cash flow, and now it will have the strongest balance sheet in the industry.

Peter Bush, Nine Entertainment

The buyout firm’s Asia-Pacific unit acquired Nine from media mogul James Packer at the top of the market in 2007, in a two-stage deal worth A$5.6 billion. Despite a reported cash injection worth A$1.9 billion between 2007 and 2008, interest payments were swallowing most of the Nine’s cashflow. The company’s substantial debt load was due to be repaid or refinanced in February next year, precipitating the talks with lenders that culminated in this week’s deal.

Oaktree Capital Management and Apollo Management, the group’s two largest senior lenders “negotiating on behalf of 75 percent of the company’s senior debt”, together with Goldman Sachs Mezzanine Partners (representing 80 percent of the mezzanine tranche), lent their weight to the restructuring. Oaktree has been involved in several processes in the region – last year it won control of Alinta Energy after teaming with TPG Opportunities Partners, for example.

The Nine deal, expected to be implemented over the next three months, will encompass all existing senior and mezzanine debt being converted into equity, leaving Nine with no outstanding debt and CVC’s entire holding — which was spread across four funds — written off. Investors in those funds have been kept abreast of the situation throughout the life of the investment, according to a source familiar with the matter, so the write-off will not have come as a surprise. 

In exchange for cancellation of the existing debt, senior lenders will collectively receive 95.5 percent of Nine’s equity, with mezzanine lenders receiving the remaining 4.5 percent.

A point of contention had reportedly been demands from mezzanine lenders for warrants in the restructured company, but Goldman waived those demands in return for a larger slice of the equity.

The overall debt load is worth approximately A$3.3 billion, and will be converted into equity worth A$2.3 billion according to reports.

Peter Bush, Nine chairman, said in a statement: “We believe this is an outstanding outcome for all stakeholders.  The business has great momentum and strong cash flow, and now it will have the strongest balance sheet in the industry. It puts the company in a remarkable position to build on the successes of 2012.”

Nine broadcast the London Olympics earlier this year

Chief executive David Gyngell paid tribute to advisors Macquarie Capital and Gilbert + Tobin “who have been extraordinarily helpful working through a very challenging period”, and acknowledged the support of CVC Asia Pacific throughout the process. “It’s been a long and often tortuous process and to all the parties I say a big thank you — because the outcome is the best imaginable result”, he said.