Media giant News Corp has agreed to backstop German satellite broadcaster Sky Deutschland’s proposed E340m financing.
The fundraising predominantly comprises a rights offering of up to 269.6 million newly issued registered shares and is expected to take…
Media giant News Corp has agreed to backstop German satellite broadcaster Sky Deutschland’s proposed E340m financing.
The fundraising predominantly comprises a rights offering of up to 269.6 million newly issued registered shares and is expected to take place between September and October this year. The term and size of the issue are to be decided shortly before the start of the subscription period and will depend on market conditions.
News Adelaide Holdings, News Corp’s investment vehicle, has committed to
backstop the offering at a price no lower than E1 per share, the legally permissible net minimum price, and to the extent that its holding does not exceed 49.9% of Sky Deutschland. News Corp currently owns a 45.42% stake in the DTH provider.
Depending on the amount raised through this transaction and in order to ensure that the overall proceeds amount to at least E340m, Sky Deutschland stated that it may subsequently issue a convertible bond to as well as secure a shareholder loan from News Adelaide Holdings.
The potential bond would be issued via a private placement and be convertible for up to 53.9 million underlying ordinary shares taken from Sky Deutschland’s contingent capital. The unsecured subordinated bond would have a four-year maturity, carry a coupon of between 5.5 – 6.5% and have an initial conversion premium of 25 – 30% with a minimum conversion price of E1. The bond would also be subject to a 40-day holding period.
The News Adelaide Holdings loan would also be subordinated to Sky Deutschland’s existing credit facilities, mature on March 31 2014 and bear an interest of 12%, which would accrue and be payable at maturity. As with the bond, the shareholder loan could be converted into equity at a later date. Both potential debt arrangements are expected to be closed by no later than January 31, 2011.
In order to complete the E340m financing, Sky Deutschland has asked its lending bank syndicate to waive certain covenants, such as mandatory prepayments from the proceeds, on its E525m debt, which is consists of two term loans amounting to E275m, E125m revolver and a E125m guarantee facility. So far the company’s two largest lenders have consented to the waiver and necessary amendments, while formal consent of the full lender group is expected in the next few weeks, prior to the rights issue.
Royal Bank of Scotland and UniCredit Bank are acting as joint global coordinators and joint lead managers for the rights offering, while Nomura acted as financial adviser to the company.
The forthcoming rights issue represents the company’s seventh capital increase in the past five years as it seeks to reach a critical mass of subscribers to turn a profit. Chief executive Brian Sullivan, who took over in April, said this would be the last for at least the next 12 months.
Commenting on the planned transaction, Sullivan said: “While I am happy that the business is moving in the right direction, I am not satisfied with the pace of development. In my time at Sky Deutschland, it has become clear to me that we must further invest now in those areas that fundamentally differentiate us for customers, and that will accelerate growth in subscribers and ARPU. We also need to shore up our financial position to enable us to focus on growth. I am confident this will allow us to achieve the necessary momentum to build a sustainable business for the future.”
In its preliminary second quarter 2010 results, Sky Deutschland reported total revenues of E236.1m, up slightly from E230.6m in Q2 2009, a negative EBITDA of E47.4m, a year-on-year improvement of E16m, and a quarterly net loss of E81.9m.
The company showed net subscriber growth of 6,000 compared to a net subscriber loss of 7,000 in Q2 2009 – the first positive net growth in a second quarter since 2005. Churn was also down to its lowest level in four years to 16.3%. Sky Deutschland now has a total of approximately 2.476 million subscribers.
Based on these results, Sky Deutschland estimates that its full year 2010 EBITDA will both remain negative and be significantly lower than previously indicated due to the slower than expected subscriber development and the predicted increased investment in key initiatives following the financing measures. Full year 2011 EBITDA is expected to be significantly better than 2010, but will still remain negative.
