ENDEMOL, THE television company behind the Big Brother franchise, has become the latest group to come under attack from lenders unhappy with companies using debt buy-backs as a way to help them remain within debt agreements.
Three hedge funds are pushing for the TV producer to agree to halt any further debt buy-backs, which could help it avoid breaching its debt covenants.
The funds, Centerbridge, GoldenTree and Sankaty Advisers, hold about 20 per cent of the company’s senior debt.
Endemol is one of a number of companies that have used the present low market prices for their debt to boost reported earnings by booking as revenue the difference between the market price paid and the higher par value of the debt, which is the amount it technically owes.
Should the company near a covenant breach, shareholders might have to inject fresh equity or face restructuring talks with creditors. Some lenders have objected to the use of buy-backs because they consider the resulting gains do not meet the definition of key terms in the covenants.
The Endemol lenders have asked Barclays to gauge support from other debt holders for formally requesting the company to commit to no further buy-backs.
Endemol is understood to have made about €80 million gains from debt buy-backs. – (Copyright the Financial Times Ltd 2010)
