Bankers Give Austar A Second Chance
Sydney Morning Herald
Tuesday February 26, 2002
Struggling regional pay TV operator Austar has been given a new lease of life after its bankers finally agreed to refinance its $400 million loan and its US parent UnitedGlobalCom put up a $30 million guarantee.
Almost two months after it was due to repay the $400 million, Austar announced yesterday that it had reached in-principle agreement with its 15-member banking syndicate to refinance the debt.
As part of the new deal, Austar's 81 per cent shareholder, UnitedGlobalCom (UGC), has provided the company with a $30 million ``contingency account".
The loan agreement depends on documents being finalised.
Austar now has until 2006 to repay the debt, which originally fell due on January 1 this year. If Austar had failed to renegotiate the terms, it would have had to repay the full $400 million before the end of next month.
Losing hundreds of millions of dollars, Austar had just $103 million cash left in the bank at the end of December.
Austar chief executive John Porter said UGC's willingness to demonstrate its continuing commitment to the company was of ``vital importance". An Austar spokesman said UGC's $30 million gave the company ``a bit of wiggle room if we need it".
Austar said it did not need more money to meet its business plan.
It expects to be in the black at the earnings before interest, tax, depreciation and amortisation line this year before becoming operating cashflow positive by 2004.
``With this issue close to finalisation, Austar can focus squarely on executing its key operational priorities managing growth while closely controlling costs," Mr Porter said.
The move means Austar is no longer as vulnerable to predatory moves by its metropolitan pay TV counterparts, Optus and Foxtel.
``This puts them in a stronger bargaining position," one industry observer said.
Austar has been in discussions with Optus since late last year about a possible alliance which would enable both companies to slash operating costs and possibly negotiate more favourable US programming contracts.
The country's largest pay TV provider, Foxtel, is also interested in Austar, but competition issues could preclude a merger.
This made acquiring Austar's assets under a liquidation scenario a much more attractive option for Foxtel, which is owned by News Ltd, PBL and Telstra.
Austar must now focus on reversing falling subscriptions and growing revenue.
Even with a pay TV monopoly in regional Australia, Austar faces a 2001 full year loss of at least $343 million as a result of costly programming deals written in US dollars and subscriber growth which has stalled at 430,000 customers.
Austar embarked on a major restructure late last year in a bid to improve its financial position and sustain investor support.
It sacked a third of its 1200 staff, closed many regional offices and outsourced a number of business operations.
Shares, worth $9.65 at the height of the tech boom, sank to a record low of 15c in September amid solvency concerns. The shares fell 0.5c to close at 30.5c yesterday before the refinancing deal was announced.
© 2002 Sydney Morning Herald
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