Ten Network Holdings Limited (ASX: TEN), the owner of Channel 10, has confirmed that its billionaire guarantors intend to pull the rug out from underneath it. Today, its shares entered a trading halt.
TEN share price
The chart above shows the TEN share price versus the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). As can be seen, Channel 10 has been on the rocks for some time.
What’s going on?
Earlier this year, TEN released its half-year financial report to the market showing a 2.5% fall in revenue and a loss of $232 million, down from a profit of $13.4 million last year. The company blamed television licensing costs, which the Government requires television operators to pay to run their networks. However, behind the scenes, there are more pressing concerns for shareholders.
Firstly, free-to-air television is struggling. YouTube, Facebook, Netflix… you name it. Fewer people are watching free television.
This leads to lower advertising revenue, poorer quality content, fewer eyeballs, lower advertising revenue… it’s a vicious cycle.
But the short-term concern for shareholders is the company’s debt pile. In April, the company said it was trying to ‘transform’ its business and would be required to use the remaining ~$134 million of debt available in its $200 million debt facility.
Unfortunately, the debt facility expires this year.
TEN said it would get another $250 million loan to meet its transformation costs.
“The New Facility is also required as a result of expected future trading performance and volatility within the free-to-air television advertising market,” the company’s half-year financial report read.
But the biggest problem for TEN is that the company’s debt is being secured by a few very powerful Australian billionaires. According to TEN, they had demanded the company showed improved financial results before they would stand behind and guarantee another loan.
Today, TEN shares entered a trading halt.
“Over the weekend, TEN received correspondence from financial advisers to Illyria Pty Limited (Illyria) and Birketu Pty Limited (Birketu), two of the shareholders that guarantee the Company’s current credit facility. That correspondence confirms that those guarantors do not intend to extend or increase their support for the Company’s credit facilities beyond the term of the current facility which expires on 23 December 2017.”
In light of this, TEN’s board says it is working to consider its position and strategy.
“Pending these determinations over the coming days, TEN considers that its shares will not be able to trade on an informed basis and, accordingly, requests the trading halt.”
For a few years, I and other writers on this site have been telling long-term investors to avoid TEN shares. It would be concerning to see Channel 10 go out of business, however, the industry has been facing stiff competition from superior online alternatives for some time.
I’m not willing to guess how this trading halt ends for shareholders, I only hope investors went into the investment with their eyes wide open to the risks — because it does not look good.
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