today's report, page-11

The latest on TEN's debt and a necessary sale of Eye Corp. From the AFR:

http://www.afr.com/p/business/companies/eye_corp_sale_needed_as_tight_times_tKYJxiSd0bBuAJKpQskKtO

Ben Holgate

Eye Corp sale needed as tight times hit at Ten

Ten Network’s outdoor advertising business Eye Corp may not be for sale “at any price”, as James Warburton said yesterday, but it’s definitely for sale at a price.

It wasn’t too difficult to divine from the TV chief’s results briefing that Ten is hopeful of a sale to CHAMP Private Equity but is resigned to a lower price than originally agreed.

Ten needs the Eye Corp sale proceeds to reduce debt in order to create a prudent buffer from its debt covenant ratios in case the advertising market deteriorates further. It probably will.

The network is about to enter crucial ad rate negotiations with advertisers for 2013 facing the likelihood it will have to accept a rate cut due to poor TV ratings.

Even under the best-case scenario Ten’s financial situation is tight.

If Eye Corp sells for, say, $110 million up front, slightly less than CHAMP’s first offer, the company will still have to raid most of its piggy bank of $93 million in cash to pay off a $210 million US private placement facility in March.

Given ongoing expenses, Ten would likely draw down about $50 million on its domestic debt facility, leaving it with about $200 million in drawn debt after taking into account an existing $150 million US private placement.

Under its debt service covenant ratio it would have to generate $50 million in earnings under this scenario. With brokers heavily downgrading their forecasts – CLSA now expects only $45 million in 2013 earnings – this might prove difficult.

Of course, Ten is only two hits away from a turnaround. Next Tuesday’s 2013 program launch may contain a surprise or two.