'We trusted the group's credit' — JoongAng Group's court protection filing clouds return of investor funds

Financial investors who backed JoongAng Group's content affiliates now face serious uncertainty over recovering their funds after JoongAng Holdings and other core group subsidiaries filed for court receivership in quick succession. The investors had cooperated with maturity extensions and other accommodations based on the group's creditworthiness, but if receivership proceedings move forward in earnest, a prolonged wait for repayment appears unavoidable.

JTBC, JoongAng Holdings, Joongang P&I, ContentTree Joongang and Megabox Joongang were among the group's major affiliates that filed petitions with the Seoul Bankruptcy Court to commence receivership proceedings, according to investment banking industry sources Monday.

If the court recognizes the need to open proceedings, creditors and secured lenders will be barred from exercising enforcement rights. The companies would then be required to draw up a rehabilitation plan, consult with creditors and carry out the plan.

JoongAng Group had pursued financing from banks, private credit fund managers and private equity fund managers, but none of those efforts succeeded. ContentTree Joongang sought roughly 300 billion won ($197 million) in investment and loans from Ares Management early this year, but talks collapsed in April. A subsequent attempt to issue 100 billion won in convertible bonds also fell through. Megabox Joongang, which is pursuing a merger with Lotte Cinema, separately negotiated a 400 billion won investment from IMM Credit & Solutions, but that deal also failed.

"ContentTree Joongang and SLL Joongang, as well as JTBC, approached private credit funds seeking capital infusions, but those efforts came to nothing," an investment banking industry official said. "Deteriorating management conditions and the weight of debt made it very difficult to consider investing."

Earlier Monday morning, private equity funds and other investors in JoongAng Group held emergency meetings to begin working out a response.

JoongAng Group's content arm runs through a chain of affiliates — JoongAng Holdings, Joongang P&I, ContentTree Joongang, SLL Joongang and Megabox Joongang — and several have received investment from financial investors or have been in discussions over terms.

SLL Joongang raised 300 billion won from Praxis Capital and 100 billion won from Tencent in 2021 through pre-IPO equity investments. The deals required a completed stock market listing by March 2024, but the IPO has been repeatedly pushed back due to a slump in the content market and weak earnings.

Parent company ContentTree Joongang has also used financial investor capital to shore up its liquidity. JKL Partners purchased 100 billion won in convertible bonds issued by ContentTree Joongang in 2021. In April last year, Korea Investment PE participated in a 30 billion won convertible bond investment.

Discontent is surfacing among investors over the group's decision to seek court protection before pursuing more aggressive self-rescue measures. Investors had agreed to delay repayment on the assumption that JoongAng Group's credit standing and the possibility of affiliate support would hold — only to find themselves left out in the cold once the group chose the receivership route. Once proceedings begin, repayment priority goes to public-interest claims, secured creditors and financial institution creditors. Depending on the investment structure, financial investors' claims tend to be subordinate in nature, making full principal recovery increasingly unlikely.

Industry observers say the group deepened its liquidity crisis by continuing to funnel money into Megabox Joongang. Financial burdens accumulated at Megabox Joongang in the wake of the COVID-19 pandemic, and the risk eventually spread across the entire group. ContentTree Joongang lent Megabox Joongang 21 billion won on May 26, continuing a pattern of financial support; its total loans to Megabox Joongang have reached 169 billion won.

Compounding the problem, JTBC's deteriorating earnings and mounting debt drained the group's overall funding sources rapidly. JoongAng Group attempted a sale-and-leaseback of its headquarters building, pursued convertible bond issuances and sought outside investment, but ultimately failed to raise market-based financing.

JoongAng Group Vice Chairman Hong Jung-do held a press conference Monday afternoon. "Worsening external economic conditions, a credit rating downgrade and the resulting funding squeeze left us with no choice but to take this unavoidable step," he said. "I sincerely apologize to the many creditors, shareholders and other stakeholders of JTBC, Megabox and ContentTree Joongang. We will do everything in our power to achieve a swift return to normalcy."