Frequency deal paved way for revamp

Steven Joyce, Minister of Communications. Photo / Brett Phibbs

Documents released under the Official Information Act show the Government's sweetheart deal with MediaWorks staved off problems at the time with the broadcaster's capital structure.

The deal allowed radio companies to pay 20-year leases to frequencies in five instalments rather than one fell swoop, paying interest along the way.

MediaWorks lobbied hard for the deal, the documents show, leading Ministry of Economic Development officials to say the primary driving force for the change was to assist in the refinancing of the company.

The documents reveal the Cabinet was asked to push through the delayed payment deal before an October 31, 2009 deadline - so MediaWorks could go ahead with restructuring.

The Government and the Radio Broadcasters Association portrayed the delayed payment deal as being for the entire industry, to account for an advertising slump after the global financial crisis.

But the vast majority of the value of the scheme was to MediaWorks, whose problems also related to its capital structure.

Government officials said there was a risk taxpayers were acting as a banker to private companies.

It is understood MediaWorks' main radio rival, The Radio Network, considered but did not take up the option.

Communications Minister Steven Joyce - a founder of MediaWorks - had rejected requests that broadcasters should be able to pay off frequencies over time.

The OIA revealed communications between government departments and ministers and Cabinet papers.

They included references to a report by accountancy firm Deloitte that looked at the impact on the two dominant companies - MediaWorks and TRN.

Major issues faced by the companies were over capital structure.

"Deloitte advises that it was unlikely MediaWorks would have been able to fund its $42 million liability through two years of positive cash flow even if the advertising market had not suffered a downturn," the documents say.

Ironbridge Capital New Zealand operational partner Kerry McIntosh said: "We agreed to the proposal for a deferred payment because it was commercially sensible at the time.

"Of course our circumstances have changed since mid-2009 - it is a matter of public record that funds advised by Ironbridge recapitalised Mediaworks in December 2009."

This included providing new shareholder loans of $50 million.