Murdoch Debt Refinanced; Some Assets Will Be Sold

Rupert Murdoch’s News Corp., after three months of tense negotiating with its lenders, said Friday that it had reached agreement with its banks to refinance $7.6 billion in debt.

Although the new loan package rescues News Corp. from the financial brink, the company nonetheless will have to sell assets to meet its debt repayment schedule.

In addition, the banks have granted News Corp. a $600-million credit line that it must repay by February, 1992. The funds will be used for working capital and capital spending.

“It’s very difficult any time you try dealing with 146 banks to refinance $8 billion in debt,” said Murdoch about the lengthy negotiations. “We feel very pleased with ourselves that we concluded it.”

Under terms of the new loan package, which will carry a higher interest rate, News Corp. must repay $800 million to the banks by next February, followed by three $400-million payments every six months thereafter.

A News Corp. spokesman said that after a total of $2 billion is paid off in 2 1/2 years, the company would attempt to refinance the remaining $5.6 billion.

Not covered in the refinancing agreement is about $1.8 billion in publicly held bonds and debt associated with the company’s HarperCollins book publishing subsidiary. That debt will be paid under existing agreements.

In addition, News Corp. agreed not to raise its common stock dividend above the current annual 10 cents (Australian) per share. Stockholders will have the option of receiving their dividends in shares, and the Murdoch family, which controls 45% of News Corp., has already agreed to accept shares instead of cash dividends.

“He’s in the clear,” said Richard J. MacDonald, a partner in the New York investment firm of MacDonald Grippo Riely Inc. “But now most of the debt pay-down will have to come from asset sales.”

Murdoch’s financial problems came to light last August when the company disclosed that its debt had swelled to $8.7 billion, including $2.3 billion due the following July.

The company had taken on much of the debt recently in a series of expensive investments, including the $2.8-billion purchase of Triangle Publications, owner of TV Guide and other titles; the upgrading of newspaper presses in Australia and Britain; the consolidation of its HarperCollins publishing division into News Corp., and the launch of Sky Television, a British satellite-based TV system.

Since November, Murdoch has been in almost nonstop meetings with bankers to negotiate a new financing package. Talks were drawn out because News Corp. officials discovered that some of the major banks had sold pieces of their loans to smaller banks, enlarging the pool to about 150 lenders.

John Reidy, an analyst with Smith Barney, Harris Upham & Co. in New York, said it was encouraging that the bankers did not commit News Corp. to specific asset sales. He cited a commercial printing business in Australia and a 50% interest in the Australian airline Ansett as likely properties to be sold.

In a telephone interview, Murdoch acknowledged that there would be “some non-core asset sales.” He added, however, that “we are in no hurry because we don’t have our first repayment for 12 months.” Beyond that, he said, “we expect to earn our way through this.”

Analysts said they do not expect News Corp. to sell any of its key assets, which in the United States include the Fox film studio and TV network, TV Guide, New York and eight other magazines, and newspapers in San Antonio and Boston.

When it comes to selling assets, “I’d rule out newspapers, film, TV, books and major magazines,” Murdoch said.

Murdoch previously has said News Corp. will need to sell $1 billion in assets. But he may find this a difficult task, especially during a recession when media properties no longer command premium prices. Murdoch said there may be an announcement shortly about overseas partners coming in as investors in “non-core areas.”

The refinancing agreement came two days after News Corp. announced that August (Gus) Fischer had been appointed chief operating officer. Fischer, a relative newcomer who had been the second-ranking executive at News Corp.’s British subsidiary, fills a post that had been vacant for many years.

“This is now a big, diversified company,” Murdoch explained. “We have a tiny head office, and it’s time we had a little more depth in it.” Fischer, he said, would be a “trouble shooter for me. I’ve been more of a crisis manager, and now I’ll have someone to send to the crisis.”

Murdoch said he is unsure what part of the company he will focus on now. Much of last year, for example, was spent in London overseeing Sky TV. That venture recently merged with rival British Satellite Broadcasting, thereby eliminating what would have become an increasingly costly competition.

But, he said, “I’ll have more time for strategy and the creative side of our business.”