Equity Media files bankruptcy; lender agent asks court to convert or dismiss case, allow foreclosure

By Caroline Salls

Pittsburgh, Dec. 9 - Equity Media Holdings Corp. filed for Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the Eastern District of Arkansas.

Lender agent Silver Point Finance, LLC asked the court to either convert the case to Chapter 7 bankruptcy, which is used for liquidation, or to dismiss the case, arguing that the company only filed for bankruptcy to stay a foreclosure proceeding.

Silver Point said it launched a judicial foreclosure and receivership proceeding against Equity Media on Dec. 2 in the Circuit Court of Pulaski County, Ark., and the agent asked the bankruptcy court to lift the stay imposed by the bankruptcy filing to allow it to continue with the foreclosure.

"The gross mismanagement of the debtor's business has resulted in continuing substantial losses, and further diminution of the debtor's estate is inevitable," Silver Point said in the case conversion motion.

"Furthermore, the debtor filed this case with no planning and no exit strategy, and there is no reasonable likelihood that it will be able to reorganize successfully in Chapter 11."

The lender agent said Equity Media and its subsidiaries do not have enough cash to meet payroll obligations, and all or a substantial portion of the company's cash constitutes cash collateral, which it cannot use without the senior lender's consent.

In addition, Silver Point said Equity Media filed for bankruptcy "following years of cash flow negative operations, numerous accommodations by the senior lenders, and months of continuing defaults under the credit agreement."

The lender agent said the company has turned down repeated offers of debtor-in-possession financing and offers of additional financing "to hire competent restructuring counsel," choosing instead to hire counsel the morning of the filing and allegedly neglecting to conduct any due diligence regarding the ramifications of the bankruptcy filing.

"This ill advised strategy risks triggering cross defaults under every single one of the subsidiaries' affiliation agreements and programming contracts with catastrophic consequences to the value of the company's operations," Silver Point said in the motion.

"The secured lenders are no longer willing to facilitate the management's wanton destruction of value and will not consent to the use of their cash collateral."

According to court documents, the company has $100 million to $500 million in assets and $50 million to $100 million in debt.

A hearing is scheduled for Dec. 16.

Equity Media, based in Little Rock, Ark., owns and operates television stations. Its Chapter 11 case number is 08-17646.

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