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The Money Drop

23 January 2012 By Quentin Webb

Contestants live under constant threat of eviction on “Big Brother”, Endemol’s flagship television show. Creditors have found turfing out the company’s owners much harder.

After years of wrangling, hedge funds which bought the TV producer’s loans on the cheap are set to take sizeable stakes through a debt restructuring. That makes Endemol a textbook example of what the distressed-debt specialists which are pouring capital and manpower into Europe call a “loan-to-own” deal. But it’s also a case study in how difficult these victories can be.

Endemol offers three main lessons. First, a big firm’s many owners and lenders may pull in different directions, which can slow down or block deals outright. Some banks might balk at accepting shares in a debt swap. Endemol has three owners – Goldman Sachs, Silvio Berlusconi’s Mediaset, and co-founder John de Mol – and three main banks: Barclays, Royal Bank of Scotland and the Lehman Brothers estate. Despite protracted negotiations, neither Mediaset nor Barclays back the current deal, a person familiar with the matter said.

A second lesson is that boom-year buyouts weren’t just overleveraged. They often also came with loose loan agreements that leave owners lots of wiggle room to avoid a default. It took court threats to stop Endemol buying back its own debt on the cheap in order to flatter its loan covenants.

The third lesson is that private equity owners – in this case Goldman – can fight hard to avoid a default, even when logic may dictate they should just walk away. That’s because losing a banner investment is a reputational as well as financial blow.

It’s too early to say how well Centerbridge, Apollo, and the other hedge funds that will soon part-own Endemol have done. The restructuring may clear the way for a sale to a media group such as Time Warner. But for now the funds will become shareholders in an unlisted company. Only when they sell out will it be possible to say for sure whether the wrangling was worth it. Either way, future evictions are unlikely to be much easier.


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