Debt-for-Control Investing in Asia: Nine Entertainment Company

Abstract

In October 2012, Australian media giant Nine Entertainment Company (NEC) was in the midst of a major debt renegotiation that would determine whether the company received a renewed chance to survive and thrive or faced a long and potentially costly insolvency proceeding. Six years earlier, private equity firm CVC Partners (CVC) had taken a controlling position in NEC, culminating by 2008 in one of the largest leveraged buyouts (LBOs) in the Asian market. Now, due to declining revenues in the Australian media markets in which it operated, NEC was in jeopardy of defaulting on its senior secured debt. A large portion of the senior secured debt was owned by Apollo Global Management (Apollo) and Oaktree Capital Management (Oaktree), two large alternative investment funds that specialized in managing—and often taking over—companies in financial distress. Apollo and Oaktree prepared to face off against NEC's CVC owners—as well as holders of NEC mezzanine debt, dominated by a credit arm of Goldman Sachs—in what could culminate in a costly restructuring process and bankruptcy filing. In the middle of the negotiations was David Gyngell, NEC's CEO and son of the famed Nine Network TV broadcaster, Bruce Gyngell. What were his options? Could he facilitate a consensual agreement across the varied investors representing the debt and equity holders in this case? Or would NEC be forced to file for the Australian version of a bankruptcy proceeding?This case is appropriate for graduate or undergraduate students with an introductory background in finance. It enables students to learn from a real-life case about a variety of relevant topics, including the Australian media market, the Asian LBO market, and restructuring options in industrialized economies outside the United States. Excerpt UVA-F-1800 Rev. Dec. 13, 2017 Debt-for-Control Investing in Asia: Nine Entertainment Company Overview It was the morning of October 16, 2012, and David Gyngell, CEO of Nine Entertainment Company (NEC), faced one of the biggest challenges of his business career. NEC and its leading assets, Nine Network Australia (television) and ACP Magazines, were leading institutions in the Australian media landscape. Gyngell had accepted the job of CEO with relish less than a year before. He had been brought in by NEC's private equity owners, CVC Capital Partners (CVC), to help restructure the media empire following the global financial crisis and a decline in advertising revenues. Yet now he had to represent the company in debt negotiations that were pitting some of the largest and most savvy investors in the world against each other, hedge fund Oaktree Capital Management (Oaktree) and private equity firm Apollo Global Management (Apollo) versus the venerable Goldman Sachs. Media reports that morning had described the forthcoming negotiations as “D-day,” with the company “on the brink of collapse” and its future “on tenterhooks.” As Gyngell knew, the media loved talking about the media, especially when it involved the financial distress of one of Australia's leading companies. . . .