O'Reilly & the bondholders: Another twist, another turn

Should journalists working for Independent News & Media be concerned about the talk of a rights issue that emerged over the weekend and was confirmed this morning?

Adjectival flourishes like ’emergency’and ‘deeply-discounted’make the news of INM’s rights issue sound vaguely threatening.

Yes, there’s risk involved. But this also looks like the beginning of the end for INM’s irksome negotiations over the €200m bond it owes to a selection of financial institutions. And that’s good news.

The original repayment deadline was mid-May. This was extended to 26th June while negotiations continued. Now we’re probably looking at a further extension to 24th July.

A successful conclusion to talks would open the way to a separate, badly-needed, deal with the lending banks to whom INM owes a further €1.4bn. This larger deal — already agreed in principle — has been designed to haul INM through the rest of the recession.

The rights issue will raise money for a part-repayment to bondholders by offering INM shareholders the right to buy further shares in the company. If investors don’t take up their rights, the extra shares will be purchased — and offloaded at a later date — by investment banks who underwrite the offer.

This time-honoured mechanism should ensure that INM gets its money — anywhere between €50m and €100m, according to reports.

Emergency? Well, yes, this is the adjective for rights issues the City didn’t see coming, or didn’t want.

Deeply discounted? The explanation here is that INM will offer new shares to the market at a bargain compared to the company’s current share price. The more troubled the company, the deeper the discount required to induce shareholders to throw good money after bad.

This morning, the market is chasing that discount: this explains why INM’s shares fell so heavily when markets opened.

Since mid-May, we’ve seen glimpses of the negotiating positions adopted by INM and its bondholders. Some of this has amounted to little more than grandstanding.

Clearly, the bondholders want to take as much of the €200m they’re owed out of INM. This is largely because they would rank far down the pecking order (after the banks who have extended loans) in the unlikely event of INM going into administration. Almost certainly, they’d lose their money.

For its part, INM wants time in order to avoid a fire sale of assets at low prices. Short of cash, it wants the bondholders to roll over as much of that €200m as possible into a new bond.

With two shareholders — Sir Antony O’Reilly and Denis O’Brien — holding 56% of INM’s shares, getting the rights issue away should be possible.

(Not everyone feels this way, mind. At FT Alphaville this morning, Paul Murphy used the words “finally, predictably, desperately” to describe the rights issue. He added: “I dont quite see how they can do this at this late stage.”)

Theoretically, this drama could yet play out in unexpected directions. But the willingness of lending banks to re-schedule INM’s €1.4bn debts suggests very strongly that INM won’t go down the tubes.

By the same token, dealing with a company that can’t pay its debts is always painful. In the US cliché, the talks between INM and its bondholders have been all about sharing that pain — between bondholders, shareholders and lending banks.

The bigger question is how long it will take Independent News & Media to pay down to reasonable levels the huge debts it accumulated during the boom years.

The month-to-month standstill agreements now being struck with bondholders feel highly dramatic. But they remain less significant than this other, much longer-term timeline, which could extend well into the next decade.

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