American Media seeks noteholder consent on filing extensions, plans tender once bank debt reduced

By Paul Deckelman

New York, June 15 - American Media Inc. said Thursday that it would ask its bondholders to approve extensions of filing deadlines for its re-stated financial reports, offering a 25 basis point concession to them for their consents. It also said that it planned to make an offer to buy back at least a portion of its bonds, once it had brought its ratio of senior debt down to a level acceptable to its bank lenders.

"We consider this to be a relatively easy consent," Jim Casey, the managing director and head of high-yield capital markets for JP Morgan Securities, said on a conference call with the bondholders. JP Morgan is working with the New York-based magazine publisher on getting those consents. "There's a lot of good news about the company, and the company simply needs a little more time."

Casey also said that the company wanted the bondholders to consider "whether you'd want to put your steering committee back together, or do this as a larger group. We can accommodate either of those - but we would ask that people try to deal with us on a relatively quick turnaround." However, no formal deadline for having the consents in hand was established.

The company is restating financial reports going back some three years, including its fiscal 2005 10-K annual report and the 10-Q quarterly reports for the first two quarters of its 2006 fiscal year. It is seeking to extend its deadline to provide the restated financials to Aug. 15 from the current June 28 deadline, and plans at the same time to complete and file its 10-Q for the 2006 fiscal third quarter. That, in turn, would allow it to file its 10-K for the fiscal 2006 year by Sept. 15. American Media is also seeking to extend the deadline by which it will file its 10-Q report for the first fiscal quarter of the 2007 fiscal year to Sept. 30. Casey called those "relatively modest" extensions of about 48 days.

The company's chief executive officer, Carlos Abaunza, said that the restatement process was "on schedule" but ultimately would depend on when its independent auditors, Deloitte & Touche, could complete a review of its internally generated figures.

Cutting costs

Casey, Abaunza and American Media chief executive officer David Pecker told the noteholders about the progress that the company was making in cutting costs, including its recent shutdown of three money-losing titles and its plans, announced Wednesday, to put five other magazines up for sale. It is estimated that such a sale could fetch approximately 10 times to 13 times the estimated $30 million of EBITDA produced by those titles, or about $300 million to $390 million total.

Asking for bank waiver

Besides seeking the consents from its noteholders, the company is also separately seeking a waiver from its bank group, which would allow for the asset sales, and the use of some of the proceeds to first pay down some bank debt and then buy back some of its notes. The anticipated proceeds from the asset sale are not sufficient to completely take out the bonds, company officials acknowledge.

The company currently has $450 million of term loan debt outstanding, and has drawn down $40 million of its $60 million revolving credit agreement availability. However, Abaunza noted that it also has $46 million of cash on hand. During the conference call he said that the cash had essentially been drawn from the revolver to make sure that we have "adequate liquidity" while it goes through the current transition phase of restating results and selling the assets. "Once we resolve this, we expect to put it all back."

Expects $75-$100 million paydown

The CFO later told Prospect News that the company expects to pay down a total of about $75 million to $100 million of bank debt, starting with the revolver payback, in order to bring its ratio of senior secured debt to EBITDA down to 3.75 times, from the current 4.0 times ratio.

At that point, he said, with the banks' permission, the company would then seek to buy back a portion of its $550 million of bond debt, which is subordinate to the bank debt. The company has $400 million of 10¼% notes due 2009 outstanding, as well as $150 million of 8 7/8% notes due 2011. Abaunza said American Media would target the higher-coupon, closer maturity debt. The bond indentures require that it offer to buy the notes back at par (those 10¼% notes, after two days' of advance on the asset-sale news, currently trade in the low to mid 90s).

Besides seeking permission from the banks on using any asset-sale proceeds for debt paydown as indicated, American Media is seeking another waiver from its banking group related to its restatement effort that would increase the operating income and EBITDA restatement limitations to $30 million from $20 million. JP Morgan's Casey said that American Media has already made a presentation to the bank group, expects to have all of the necessary signatures by next Thursday, and sees the amendment closing by next Friday.

American Media expects to be in compliance with all of its covenants as of the end of the current quarter on June 30.

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