Independent News & Media: Sky not fallen in yet

Much sturm und drang about that €200m-worth of bonds that Independent News & Media needs to repay by 18th May. Yesterday, the Wall Street Journal opined that Sir Anthony O’Reilly has ‘less than three weeks to save his global publishing group”.

Describing INM as ‘debt-ridden”, The Australian, also owned by Murdoch, put the company’s doomy legalese on display for its readers:

Although account notes state INM had entered ‘constructive’talks with holders of the bond worth E200 million, the notes stated there could be ‘no certainty’these talks would be ‘successfully concluded”, or that ‘banking facilities will continue to be available to the group on commercially acceptable terms”.

At the Guardian, Roy Greenslade asked: ‘Will bondholders really dare to bring about INM’s collapse?”

At this point, rather like one of Harry Enfield’s scousers, I’m going to suggest that it would be best if everyone just. . . calmed down (eh?).

As one of Rick Wray’s sources noted at the Guardian this week, INM’s bond refinancing negotiations are ‘a mammoth game of chicken”. The sky hasn’t yet fallen on Chicken Little (a.k.a INM’s chief executive-designate Gavin O’Reilly).

Nor will it.

If IN&M were plunged into administration, its bondholders – whose investment isn’t secured against INM assets – would rank behind the company’s bankers in the pecking order.

INM has net debt of €1.3bn. So the bondholders’ chances of getting their money back via a fire sale of the company’s assets don’t look too rosy.

INM wants to cut a deal. Reports suggest that Sir Antony O’Reilly and Denis O’Brien are willing to give the bondholders €30m in part-payment. Another €40m should become available following INM’s reported refinancing of €590m of bank debt that was due to be repaid next year.

The refinancing of that bank debt is a big positive for INM. Now the company wants its bondholders to follow the banks’ example and agree to refinance the remaining €130m-worth of bonds.

In return, there’s talk that INM will pay out 8% interest on those bonds, up from the current 5.75%.

If a deal is reached, INM will gain the breathing space required to sell off unwanted bits of its empire in an orderly fashion.

The alternatives aren’t appetizing. For one thing, consider the opprobrium that would attach to pushing INM into bankruptcy.

If President Obama felt able to criticise the obdurate institutional investors who tipped Chrysler into Chapter 11 this week, what would the UK’s chattering classes have to say about bondholders who did something similar to a respected broadsheet?

Notably, the list of bondholders identified by Dan Sabbagh at the Times includes some copper-bottomed British names.

Among them: Aviva (the insurance company that owns the company formerly known as Norwich Union), Henderson Global Investors (founded in 1934 to administer the estate of Lord Faringdon) and Invesco Perpetual (one of the UK’s largest institutional investors).

The negotiations will go down to the wire because the bondholders need to extract as much cash from INM as possible. Yes, INM’s bonds are widely-held by a number of institutions. But there’s no sign here of vulture fund bosses banging on tables and screaming blue murder.

We’re also some way off a situation in which INM starts to think about a debt-for-equity swap. Indeed, in yesterday’s statement on trading conditions, INM suggested that it anticipates generating an operating profit of €200m-€230m during 2009 if advertising and credit markets ‘don’t deteriorate further”.

This is not the language of a company that believes it is about to fall off the edge of a cliff.

Look, too, at INM’s share price. Yesterday, it dipped significantly. Today, it has recovered and gained some more.

Investors believe that INM will get its bonds refinanced. On the existing evidence, you’d need to be brave to bet against them.

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