Stakeholders must offer concessions if INM restructuring is to be successful

BUSINESS OPINION:THE RESUMPTION of regular business after the summer holidays heralds fresh efforts by Independent News Media (INM) to finally settle its default last May on repayment of a €200 million bond. Several core issues remain to be resolved, prime among them renewed antagonism with key shareholder Denis O'Brien.

At a time of severe weakness in advertising markets and extraordinary pressure on all media companies, forbearance from stakeholders does not come cheaply. In the six months to June, INM incurred no less than €8.4 million in exceptional costs in relation to the restructuring process.

This was mainly for professional fees, INM’s own and those of the banks and bondholders. That is the defaulter’s burden. Following a third extension of the “standstill” pact with banks and bondholders last week, the total on this expensive meter will rise and rise until a deal is done.

If that is merely a sideshow, it illustrates the extent to which INM is now under pressure to settle matters quickly. Easy it will not be.

O’Brien, who owns 26 per cent of INM and has three representatives on its board, has given no indication of a willingness to compromise on any of his main demands.

Down €500 million on his INM shares, his actions in the coming weeks will have a big bearing on the company’s fate.

He has talked a very tough game, rejecting INM’s early proposals to break the logjam while seeking greater bondholder impairment and deeper company restructuring. These claims met with silence from the management team led by Gavin O’Reilly.

In some quarters, however, they were seen as O’Brien playing “bad cop” with bondholders, while INM management held direct talks with them. In others, they were perceived to reflect tension within INM’s boardroom as it seeks a solution acceptable to shareholders, bondholders and banks.

The sense that both were true gained strength last month when O’Brien declared in a Sunday newspaper interview that he would block the sale of South African advertising business INM Outdoor.

Furthermore, he said examinership was now an option for the business and would have to be considered by INM as efforts continue to resolve its debt issues.

These remarks were striking. For one thing, the disposal of INM Outdoor was already in train when O’Brien’s associates Leslie Buckley, Lucy Gaffney and Paul Connolly joined the INM board in March. For another, examinership is inherently risky and would lead the company and its investors into very uncertain territory.

Just as O’Brien’s public rapprochement with his rival Sir Anthony O’Reilly followed pressure from INM’s banks, they and INM’s bondholders would have had to approve the entire disposal programme as a condition for the standstill process in May.

At first there was no comment on O’Brien’s remarks from INM. Last Thursday, however, the company defied him in public by agreeing to sell the business to a private equity group led by Helios Investment Partners.

Support from only a simple majority of investors is required to execute the deal, so O’Brien cannot block it. For good measure, Gavin O’Reilly expressed confidence that a majority of shareholders will back it.

The discord between the company and O’Brien over a potential examinership, the prospects of which were dismissed by O’Reilly, is perhaps more serious.

Again, the remarks can be seen as a means of putting bondholders under pressure. Remember, here that bondholders have chosen not to call in their debt, an implicit recognition that their unsecured status would put them at the back of the creditors’ queue. The same would be true in an examinership.

But there would be other dimensions. While O’Brien didn’t elaborate on the implications of an examinership process, it is clear that such a course of action could well put INM into play.

Notwithstanding the company’s debt problems and trading weakness in all its main markets, INM’s exceptionally low share price and a strong franchise are such that trade and perhaps private equity bidders would be likely to come forward.

O’Brien himself was always presumed to have had designs in the long term on a bid for INM when he started buying up shares in the company. Therefore, it is not beyond the bounds of possibility that he could well become a bidder in an examinership.

That would assume, of course, that he had enough cash or credit at his disposal to go down that road. Risky yes, but he was never a man to shirk risk.

This is the backdrop against which INM enters the “standstill” endgame. The overarching framework of recent proposals included an extension of the maturity on more than €1.1 billion in debt, something that the company’s banks are apparently willing to grant in the context of a deal with all other stakeholders.

Bondholders would be offered some of the proceeds from asset sales upfront.

They may be offered a small debt-for-equity stake, but they would also have to take a big impairment. They haven’t signed up yet.

O’Brien, Sir Anthony and other shareholders would be expected to participate in a deeply discounted rights issue. In that context, it is a given that the participation of the big two would be a precondition for success. For all the doubt over O’Brien’s intentions, Sir Anthony is presumed willing to participate.

The O’Brien stake is of such scale that it will be very difficult for INM and other assorted stakeholders to formulate a restructuring plan that can work without his support. That avenue may yet be tried.

Absent O’Brien’s backing, however, and the prospects of success would be weakened.

Difficult as it would be to achieve, a consensual deal in which all parties jump together is still be the preferred option. This means concessions from all sides will be required.