New York Post Wednesday, March 12, 2008
AMI'S BAD MOODY'S
By KEITH J. KELLY
March 12, 2008 -- IT'S a race against the clock for American Media, publisher of the Star, the National Enquirer, Shape and Men's Fitness, following a downgrade by Moody's yesterday on the publisher's approximate $1.08 billion in debt. The downgrade was prompted by "heightened concern that American Media's liquidity profile and weak free cash flow prospects will likely be insufficient to repay the company's maturing debt in 2009," according to Moody's Although over $400 million of the debt isn't due until early next year, a lot is riding on the current fiscal quarter, because the mountain of debt has now moved to "current" debt. If the company has not figured out a way to solve its looming debt load then it could be forced into a default. The ideal way out, would be if American Media CEO David Pecker and Ron Burkle, the billionaire supermarket magnate behind Source Interlink Companies, finally figure out a way to complete the long-discussed merger of the two concerns. On that front, the banks are demanding that the two sides come up with more cash to complete a deal, because banks are skittish about lending to such a debt-heavy concern. A combined company would carry debt of over $2 billion.
While Pecker and Burkle are still said to be talking and to be interested in getting a deal done, not all of the financial partners are convinced of its merits. The two sides still need to find a way to come up with about $200 million more in cash, according to one source. But what if the merger doesn't happen? "They'll have to cut a deal with their banks and senior lenders before they file their next 10K," said the source. The 10K contains the annual financial results for the fiscal year ending March 31 - just over two weeks away. The report won't have to be filed until late June - but it is drawing near. If there is no agreement in place, the independent auditors would have to insert a note warning of pending doom. As one bondholder noted, "It becomes a kind of a domino effect." Bondholders ultimately could roll over and issue the company more junk bonds, postponing the due date. But to do that, American Media will have to offer another one-time "sweetener," usually a seven-figure fee to the bondholders. If American Media gets new junk bonds, they could carry even higher interest rates than the 10.25 percent due on the current notes.
Moody's new rating for the company has sunk to Caa2 from Caa1. To make matters worse, Moody's placed all American Media ratings under review for further downgrades. But one analyst said despite the down grade, bondholders aren't in a panic. "Operationally, they are doing better lately," said one bondholder. "We'll see what happens." Said another source with knowledge of the situation, "They are going to be making news in the next three months, one way or another." An analyst said, American Media "can play chicken with bondholders to get them to ex tend." In that scenario, the alternative is to issue new bonds due in 2011 or a "messy bankrupt company with bonds much lower." Said the analyst, "Bondholders probably blink and take the rollover bond."
