Yesterday, Credit Suisse analyst Fraser McLeish was rubbing his crystal ball again — only not for Fairfax this time. Instead he was trying to predict the future for the Ten Network. He cut the Credit Suisse share price estimate from $1 to 55 cents (Ten shares ended at 57 cents yesterday). Ten shares haven’t been above $1 since mid-December last year and will not be back at that level any time soon.

“Ten’s financial position is looking increasingly difficult,” McLeish said.“We expect the TV ad market to continue to decline, Ten’s ratings have weakened in early 2017 and a likely step up in Big Bash cricket rights costs adds to the pressure. “There are numerous ways that Ten’s funding situation could play out, but whatever happens we expect that it will have to make some major strategic changes in order to try to return to profitability.”

He pointed out that Ten’s biggest problem (besides the weak revenue, cash flow and losses, and poor ratings performance so far in 2017) is the expiry of a the Commonwealth Bank revolving credit facility on December 23 that has the backing of major shareholders James Packer, Lachlan Murdoch and Bruce Gordon.

The three businessmen signed on as guarantors for a $200 million facility with Commonwealth Bank in 2013. If Ten can’t repay the debt, the three guarantors have the right to convert their so far capitalised guarantor fees into Ten shares (we don’t know at what price). There is more than $25 million in fees so far capitalised (the February 28 accounts later this month will give a more accurate figure). That could deliver control of Ten to the trio — that’s if Ten can last until then.

Credit Suisse has a “neutral” rating on Ten as well as the 55-cent target price. The February 28 interim results will be out later this month and Ten will report a a loss for the half and forecast a loss for the year to August. It will also write down the value of its TV licences. What will be interesting will be any statement on the company’s debts, especially the CBA facility, and any comments from directors and the auditors (PwC) about Ten’s ability to remain a “going concern”. — Glenn Dyer

Peter Fray

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