Tabloid Publisher Gets Backing of Creditors For New Bond OfferingStruggling tabloid publisher American Media Inc. may have found a lifeline.
In a deal that likely saves the company from having to seek bankruptcy protection, the Boca Raton, Fla., publisher of the National Enquirer and Star magazine has secured the backing of many of its creditors for a new bond offering to refinance $570 million in existing debt.
That's welcome news for a company struggling through a declining advertising market and burdened by more than $1 billion in debt. AMI previously had said that if it couldn't refinance at least $389.5 million in debt by Feb. 1, 2009, it would have to liquidate assets or seek protection from creditors.
"This transaction, if it's successful, will take the pressure off them," said John Page, a senior analyst at Moody's Investors Service. AMI's corporate family rating of Caa2, Moody's fourth-lowest rating, is currently under review for possible further downgrade. David Pecker, chairman and chief executive of AMI, said the bond offering "is the first step in revitalizing the capital structure of American Media." Under the terms of the bond offering, holders will be able to exchange existing debt for discounted notes that pay higher interest and warrants for up to a 20% stake in the company.
AMI set a Sept. 25 deadline for the offer, but already has agreements from 33% of holders of notes due in 2009 and the requisite 51% of holders of notes due in 2011. The new notes extend the due date to 2013.
The agreement caps a productive summer for AMI, which also publishes several health and fitness titles including Shape. Earlier this month the maligned Enquirer was validated when former senator and presidential candidate John Edwards admitted on national television to having an extramarital affair. The Enquirer had begun reporting the story nearly a year earlier but its scoop was largely dismissed by the mainstream media until Mr. Edwards's admission.
The Aug. 11 issue, which reported new allegations about Mr. Edwards's affair, sold 738,000 single copies, 11% above its weekly average of 667,000 copies for the first six months of the year, according to the Audit Bureau of Circulations.
Mr. Pecker said ad sales for the first half of 2008 -- which showed a decline in ad pages in the low single digits compared with a 7.4% decline industrywide, according to the Publishers Information Bureau -- show AMI is "pretty much holding our own in a challenging environment." However, there were signs of difficulty in the second quarter. Ad pages at the National Enquirer declined 14% in the quarter, while ad pages at Star were down 10%, according to the PIB.
In recent quarters AMI has been able to largely offset revenue declines by cutting administrative staff and production costs. AMI posted revenue of $119 million for the quarter ended June 30, a 2% decline from the year-earlier period.
AMI has two private-equity owners, Thomas H. Lee Partners and Evercore Partners. A source familiar with THL's thinking said the company believes the exchange offer gives AMI enough running room to continue improving its profitability.
By: Russell Adams
Wall Street Journal; August 28, 2008
