Star ties to firm chasing more of MediaWorks

The US private equity company trying to push Ironbridge Capital out of TV3 owner MediaWorks has a history in Hollywood glitz and glamour.

TPG has a stake in TV with an investment in Miami-based media company Univision Communications. The private equity firm also invested in the troubled movie studio Metro Goldwyn Mayer.

In October last year TPG took a 35 per cent share in Creative Artists Agency, whose clients include some of the worlds' top artists such as Scarlett Johansson, Brad Pitt and Steven Spielberg.

TPG co-founder David Borderman was reported as holding a US$7 million party in Las Vegas in 2002 to celebrate his 60th birthday. Entertainment was provided by the Rolling Stones and comedian Robin Williams.

With US$47 billion ($62 billion) in investments TPG is a big player in the private equity world.

By comparison Sydney-based Ironbridge Capital is a minnow.

It has about A$1.5 billion ($1.96 billion) invested and MediaWorks - its biggest New Zealand investment - has been under pressure through its debt loading.

Ironbridge paid $790 million in 2007 for MediaWorks during the leveraged buyout boom. MediaWorks owns TV3, Four and half the country's radio stations.

TPG last week bought MediaWorks debt from Commonwealth Bank for 70c in the dollar and as a result now owns nearly 20 per cent of the debt.

The debt loading is understood to be about 10 times earnings. TPG says this is more than MediaWorks can sustain and that earnings will be under more pressure next year.

Other senior banks - including BNZ, Westpac, Bank of Scotland International, which is now part of Lloyds Banking Group, JP Morgan and Rabobank - will be assessing whether they should sell their debt to TPG.

MediaWorks has a further $97 million of subordinated debt that's held by Halifax Bank of Scotland, Royal Bank of Scotland and Ironbridge.

It also owes taxpayers around $30 million on 11.2 per cent interest under a controversial delayed payment deal with the Government so it could pay for 20-year rights to radio frequencies.

MediaWorks' debt is estimated at $388 million.

In theory, if the debt accrued exceeded the equity, TPG could control the company for an investment of about $300 million.

That is less than half what Ironbridge paid and many believe a more realistic valuation.

Such a process would be able to reduce the heavy debt loading and interest payments. But it would leave Ironbridge and second-tier debt-holding banks out of pocket.

The question now for banks with senior debts is whether they should hold fire in the expectation that Ironbridge's investment will pay off.

The alternative is to cut their losses and sell to TPG at a discount.

TPG's view is that beyond the high cost of debt, MediaWorks has been held back because it has lacked the capital investment it needs.

Ironbridge partner Mike Hill said it was committed to the MediaWorks business.

"It has always been and remains a long-term investor that recognises MediaWorks as a business with a unique franchise, great people and enviable market position.

"Ironbridge remains committed to growing it," Hill said.