MediaWorks is latest Oz debt-to-equity target

It has become an increasingly prevalent trend among mid-cap firms in the Australia and New Zealand consumer space where a number of private equity portfolio companies have struggled in a sluggish market.

Last week TPG Capital acquired NZ$70 million ($54.1 million) worth of debt in New Zealand-based MediaWorks from lender Commonwealth Bank of Australia (CBA), about 20% of the total debt load. The deal sparked concerns that the company's owner, Ironbridge Capital, could be see its controlling position eroded as creditors seek to convert debt to equity.

"What we're seeing is the rise of many of what you'd loosely call special situations groups within hedge funds, PE umbrella firms and investment banks, who view these situations as very high potential plays," Andrew Thompson, head of private equity at KPMG Australia, told AVCJ in September.

Comparisons are inevitably being drawn between MediaWorks and Australian firm Alinta Energy. A two-year negotiation between Alinta and its creditors ended earlier this year with a TPG-led syndicate winning shareholder approval for an acquisition structured as a A$2.1 billion ($2 billion) debt-for-equity deal. The company was carrying around A$169 million in debt and avoided administration by ceding control to the syndicate for A$0.10 a share.

Ironbridge bought MediaWorks for approximately NZ$790 million in 2007 but the leveraged buyout left the company with a NZ$388 million in senior debt. In addition, MediaWorks has NZ$97 million of subordinated debt; a NZ$24 million facility managed by Goldman Sachs; and a NZ$43 million deferred-spectrum payment for radio licenses with the government.

MediaWorks was unable to turn around its business due to a decline in advertising revenues. According to Interest.co.nz, the company's debt load represents about 11x EBITDA - twice as much as the business can realistically operate under.

Its plight is similar to that of Nine Entertainment, the Australian television network and publisher, although ownership is not at stake in this case.

Nine Entertainment has A$2.6 billion in senior debt due to mature in February 2013 and hedge funds have been busy buying it up on the secondary market. Apollo and Oaktree now hold more than A$1 billion of this debt burden and it is estimated that hedge funds as a whole control at least 60% of the total, up from around 30% three months ago.

CVC has twice shelved plans to restructure the debt in recent weeks as creditors hold out for more equity on better terms.

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• Topics
• Media
• Australasia
• Restructuring
• New Zealand
• Ironbridge Capital
• TPG Capital
• CVC Capital Partners
• Media