Fortress against ABS-CBN baggage: I&C holds back P2B over loans, potential landmines, Sky retrenchment

An obscure 'white knight' wants a piece of ABS-CBN Corp.'s future, but it doesn't want to inherit the fallen network giant's baggage. An obscure 'white knight' wants a piece of ABS-CBN Corp.'s future, but it doesn't want to inherit the fallen network giant's baggage. I&C Holdings Corp., formed the same month the Lopez family feud erupted last February, has already put ₱1.5 billion into ABS-CBN as part of a planned ₱3.5-billion investment. But it is keeping the remaining ₱2 billion on hold until a long list of conditions is met. Before closing, ABS-CBN must keep its representations and warranties 'true, accurate, and not misleading,' and no 'Material Adverse Effect' can arise. ABS-CBN has 180 days from Aug. 12 to get the deal across the finish line. Otherwise, the agreement automatically terminates unless the two sides agree in writing to extend it. The safeguards come a month after ABS-CBN unveiled a ₱6-billion rescue package cobbled together by former chairman and CEO Eugenio 'Gabby' Lopez III to keep his media baby afloat. Upon completion, I&C will emerge as ABS-CBN's second-largest shareholder, behind Lopez Inc., with a 37.8% stake. Behind I&C are Fortman Cline Capital Markets co-founders Daniel Ibasco and Gary Cheng. Each investment banker directly owns 14% of I&C, while the remaining 72% is held by Fortress Capital Philippine Holdings, a company they also control. For I&C, putting down the first ₱1.5 billion involved something of a leap of faith. The Aug. 12 agreement acknowledges that I&C had conducted only a 'limited review' of some companies in the Lopez media empire when it signed the deal. ABS-CBN promised to 'promptly provide to I&C all material and available facts' concerning its group and dormant companies, along with other information the investor may reasonably request. The protections I&C negotiated offer some clues about where it sees the risks. The biggest question mark, however, involves something I&C has seen but the public hasn't. '[ABS-CBN] shall remain liable for losses directly attributable to matters specifically disclosed in the Disclosure Letter, including losses exceeding P3 billion,' the agreement said. What those matters are remains unclear. I&C has seen the Disclosure Letter, but ABS-CBN did not include it in its public filing. Among the heaviest pieces of ABS-CBN's baggage is cash-strapped, debt-laden Sky Cable. ABS-CBN agreed to cover I&C for 'losses relating to assumed employee separation pay liabilities of Sky Cable in excess of P402 million,' as well as certain other liabilities tied to the Sky Group. That means if Sky Cable's separation bill turns out to be bigger than ₱402 million, ABS-CBN gets stuck with the excess, not I&C. Then there is ABS-CBN's ₱9.75 billion in combined debt to Bank of the Philippine Islands and Union Bank of the Philippines. ABS-CBN has been trying to work out a longer-term restructuring with the two banks after its 2020 shutdown battered its finances. I&C wants the restructuring to leave ABS-CBN better off, not simply push its debt problems further down the road. The agreement says the new terms should be 'more favorable' to ABS-CBN than the original loans 'to ensure recovery of the Company.' Some of the fresh money could ultimately help pay down that debt. ABS-CBN said proceeds from the ₱6-billion capital infusion would go toward working capital, past-due liabilities, repayment of bank loans and other corporate purposes. I&C also negotiated better protection for itself when it comes to ordinary claims. A claim against I&C must reach ₱100 million before indemnity kicks in, twice the ₱50-million threshold for claims against ABS-CBN. Those thresholds do not apply in cases involving fraud, bad faith or willful misconduct. I&C isn't just protecting its downside. The deal could also give it a bigger say in what happens to ABS-CBN next. Its shares will carry 'rights and features to be agreed in the Shareholder's Agreement, as incorporated in the Amended Charter.' Those additional rights were not spelled out in the public term sheet. The agreement also opens the door for I&C nominees to join the board. ABS-CBN is expanding the board from seven to nine seats as part of the recapitalization, a move it said would 'reflect the changes in the shareholding structure.' I&C's ₱1.5-billion down payment shows it is willing to bet big on ABS-CBN. The fine print governing the remaining ₱2 billion shows just how far that confidence goes.---Bilyonaryo.com ABS-CBN ownership shake-up: I&C takes 27%, becomes second-largest shareholder as Lopez Inc. stake drops to 44% ABS-CBN opens two board seats for Cory Vidanes, Bobby Barreiro