Private equity firm CVC Capital Partners faces a possible A$1.8 billion ($1.84 billion) loss on its investment in Australia's Nine television network, even as Nine contemplates the sale of assets to repay a portion of its heavy debt load.

That would be the biggest loss for any private equity firm on a single deal in the Asian region, a s the entertainment company risks a breach of debt covenants this month that could force it into the hands of its lenders. CVC bought Nine at the peak of the buyout boom between 2006 and 2008, overloading on cheap debt just before the financial crisis hit.

But the Australian media landscape has changed radically and advertising revenues have since collapsed across the sector, as viewers and readers in developed markets worldwide move online.

Television and newspaper profits have been slashed, forcing A$6 billion dollars' worth of writedowns for listed firms in the fiscal 2012 reporting season that ended last week.

The Australian Financial Review reported on its web site on Tuesday that there was growing speculation that Nine could announce the sale of its ACP magazines division later in the day.

A slide in earnings at Nine could trigger a breach of debt covenants that would deliver Nine into the hands of hedge funds and other buyout firms that now own the bulk of its debt, via a debt-for-equity swap that owner CVC is desperately trying to avoid.

"We are working on the assumption that Nine will breach covenants by the Sept. 30 end of quarter," said a banking source familiar with the situation. The person declined to be named because the matter is confidential.

The person said Nine has been dipping into a reserve account in recent quarters to meet certain covenants, but the cash account is now depleted and that made a breach of a debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) covenant more likely.

"The (creditors') rights can become a lot more severe if they are in default of debt documents," said another person familiar with the situation.

MAGAZINE SALE ON THE CARDS

Nine has A$2.7 billion in senior debt that matures in February 2013, of which about 80 percent is now in the hands of firms including Apollo Global Management and Oaktree Capital Group, which bought debt from original bank lenders on the secondary market.

CVC abandoned two previous proposals to restructure the debt after receiving a tepid response from lenders.

CVC, which paid A$5.3 billion in cash and debt for Nine, is considering options including asset sales, refinancing the debt, or bringing in new investors.

But because Nine's value has fallen since the buyout and is now likely no more than its debt, any rescue deal will still leave CVC facing the loss of its original A$1.8 billion equity investment, which was spread across four of its funds.

CVC declined to comment.

Nine Entertainment, one of the biggest private-equity owned companies in Australia, has assets including the top-rated Channel Nine free-to-air television station, ACP Magazines, ticketing agency Ticketek and Acer Arena.

The sale of the magazine division ACP could be agreed soon as talks continue with privately owned German publisher Bauer.

Both CVC and Nine declined to comment on the Australian Financial Review report.

Nine has been trying to sell ACP, which has a 50 percent market share and leading titles including The Australian Women's Weekly and Cosmopolitan, since last year.

CVC has also been trying to secure a cornerstone investor for Nine. U.S. private equity firm TPG considered partnering with Hollywood media executive Harry Sloan to bid for some or all of Nine's assets, sources told Reuters in July.

Rival private equity funds Apollo and Oaktree own around A$1 billion of Nine's senior debt and are pushing to assume ownership of Nine by swapping their debt for equity.

Several other distressed debt and hedge funds including Och-Ziff own a bit over A$1 billion of debt, although they may not all act in concert with Apollo and Oaktree.

Original lenders including General Electric, Rabobank and West LB hold about 20 percent of the debt.

Nine Entertainment's listed rival TV networks have gone cap in hand to shareholders with deeply discounted share issues. Seven West Media and Ten Network, chaired by Lachlan Murdoch, used the cash to help pay down debt.

This article is copyrighted by Reuters