Ten Network Holdings might have gained a reprieve from balance sheet concerns following the cut-price sale of its outdoor advertising business, Eye Corp, to CHAMP Private Equity on Thursday, but brokers are still worried the struggling TV broadcaster could breach its debt covenants.
UBS media analyst Richard Eary estimates Ten’s $98 million upfront payment (another $15 million is deferred for three years) will result in Ten’s debt-to-earnings before interest, taxes, depreciation and amortisaton (EBITDA) ratio increasing to 3.7 times in 2013 and its EBITDA to net interest ratio falling to three times.
This compares to Ten’s debt covenants of drawn debt to EBITDA to be less than four times and EBITDA to net interest to be more than three times.
UBS forecasts Ten’s share of the free-to-air metropolitan advertising market to be 24.5 per cent and for market growth of 3.1 per cent in 2013, but “if market growth is flat, we estimate Ten would need to achieve 25.5 per cent plus share to meet covenants”.
Deutsche Bank estimates Ten “has less than $10 million headroom on a reported basis .?.?. before breaching its debt covenants in 2013”.
Deutsche forecasts $59.4 million EBITDA in 2013 and UBS estimates $54.2 million.
There has been speculation Ten might have to conduct another capital raising to stay within its covenants if its financial performance continues to decline or the TV ad market significantly deteriorates.
TEN Price at posting:
23.2¢ Sentiment: None Disclosure: Not Held
