ITV bond buys time as advertising slump eases

ITV plans a 120 million pound convertible bond to relieve the burden of looming debt repayment deadlines and said the worst advertising downturn in decades was easing, lifting its shares 9 percent.

Britain's biggest commercial free-to-air broadcaster, struggling to find a new chairman and chief executive, also moved to plug a gaping hole in its pension fund and reiterated it had no plans to raise money by directly issuing new shares.

"We view all of these developments positively" Numis analysts, who have a 'hold' rating on ITV stock, said in a note to clients. "The current board reiterates its comments that it has no plans for a rights issue, though we retain our view that a new management team should raise equity."

ITV shares, which have lost more than half their value since mid 2007, were up 8.2 percent at 51.2 pence by 10:38 a.m. British time, having risen as high as 51.75 pence.

Already grappling with falling revenues, rising competition and what it sees as a regulatory straight-jacket, ITV said on Monday its months-long search for a new leadership team had suffered a fresh setback, with two contenders for the post of chairman ruling themselves out.

Whoever takes on the role may face a slightly easier environment than many had feared, however, after ITV said the rate of decline in television advertising had continued to ease during the second half of 2009.

Revenues from advertising at its family of channels were expected to fall by about 3 percent year-on-year in October, ITV said, predicting a similar level of decline for November. That compares with a 15 percent drop in the first half of the year.

Numis said the projected performance was better than it had been expecting and raised its full-year pre-tax profit forecast by 20 million pounds as a result. 

BREATHING SPACE

The broadcaster, home to shows such as Coronation Street and X Factor, also scrapped plans for the sale of digital terrestrial channel operator SDN, saying it now planned to use the business to bolster its pension fund.

ITV said it was in early talks with trustees about forming a partnership under which SDN would provide asset backing for the pension fund whose deficit ballooned to 538 million pounds at the end of June from 178 million at the end of 2008.

SDN continued to trade in line with expectations with full-year revenues expected to exceed 40 million pounds, ITV said.

"We have long viewed SDN as a hidden gem within ITV, and are pleased to see that the group has decided to retain the business," Numis said.

ITV said its planned convertible bond, due in 2016, would carry a coupon of 4.0 to 4.75 percent and its conversion premium was expected to be set at 32 to 37 percent.

"ITV intends to use the proceeds of the offering to extend its average debt maturity, diversify the company's funding and increase the efficiency of the balance sheet" ITV said.

Shares in ITV, fell below 20 pence and to their lowest in over two decades in March as investors fretted about the impact of sliding advertising revenues on its ability to repay a 500 million euro bond and a 450 million pound loan due in 2011.

Earlier this year ITV bought itself breathing space when bondholders owning 268 million euros worth of the 2011 bonds agreed to swap them for longer-term paper due in 2014 in return for a partial cash payment and higher interest rate. 

It has also cancelled the 450 million pound loan, which it had not drawn on, and in August said it had sold social networking Web site Friends Reunited for 25 million pounds having bought it in 2005 for 170 million pounds.