AMERICAN Media moved a half step closer to being the next major media company to file for bankruptcy.
On Dec. 1, the publisher of Star magazine and the National Enquirer missed the final deadline to make a $21.2 million interest payment, and is feverishly negotiating with bondholders of $1.1 billion of its debt.
Two industry sources told Media Ink that the company has retained bankruptcy lawyers, suggesting that it could soon be following the path taken earlier this week by Sam Zell's Tribune Co., which filed for Chapter 11 bankruptcy protection.
However, a filing could be avoided if bankers - who have been pressuring the bondholders to give up more of their stake in the company - suddenly come to terms.
Moody's reported that on Dec. 1, American Media entered into a "forbearance agreement" with its lenders and bondholders under which if it fails to pay interest on its 10.25 percent debt, it "would not constitute an immediate event of default under the terms of the notes."
"It sounds like there is a standoff between the bondholders and the bankers," said one source.
If the restructuring deal is approved, it would effectively wipe out stakeholders Evercore Partners and Thomas H. Lee & Partners, and turn over 95 percent of the stock to those holding the debt. The old shareholders would retain just 5 percent of the company under the new transaction.
While the bondholders seemed willing to go along with such an arrangement, bankers wanted bondholders to give up more than the $250 million. They have until Dec. 15 to reach an agreement.
The banks want them to take more than a 40 percent "haircut" under the current restructuring proposal.
The bond-interest payment was actually due on Nov. 1, but the company had a 30-day grace period, which expired Dec. 1.
American Media has always been cash-flow positive, but has had trouble servicing the debt it took on as CEO David Pecker cobbled together the company.
Though the company on Nov. 1 had $34.6 million in cash on hand, which could have satisfied the $21.2 million payment, the company missed the payment with a strategy in mind.
"[Pecker] knew the bondholders were ei ther going to own it, or he's going into bankruptcy, so why make the payment," said one source.
It's not that news of American Media Inc. may be filing for bankruptcy is so shocking. (David Pecker is, after all, carrying $1.1. billion in debt on a company that makes money from magazines, so his ability to pay back his creditors is sort of in
doubt.) But that it's taken AMI so long to publicly acknowledge at least through leaking to the Post's Keith Kelly the option for bankruptcy, well, that's the unbelievable part.
Not a month goes by where Kelly isn't talking about Pecker known to some as the American auto industry's biggest ally trying to restructure his debt load and make his interest payments. But here's the rub: Now that Sam Zell authorized the floundering Tribune Co. to declare itself bankrupt under Chapter 11, that option is on the table for all media companies, and the shame factor is nil.
Which means Pecker, although he doesn't want to go the Chapter 11 route, can use its possibility as a bargaining tool with the creditors he owes all that cash to. Meaning: Either they can agree to renegotiate payback terms, or he'll ask for a court's protection as he takes his time in digging his way out of this hole.
