Ziff Davis Media files pre-packaged bankruptcy case, senior secured noteholders agree to restructuring

By Caroline Salls

Pittsburgh, March 5 - Ziff Davis Media Inc. made a pre-packaged Chapter 11 bankruptcy filing Wednesday in the U.S. Bankruptcy Court for the Southern District of New York in connection with an agreement with an informal group of more than 80% of the company's senior secured floating-rate notes on the terms a restructuring designed to substantially reduce Ziff Davis' funded debt.

Ziff Davis Media is an indirect wholly owned subsidiary of Ziff Davis Holdings Inc.

According to a company news release, Ziff Davis plans to file its pre-packaged plan of reorganization shortly, and the company expects to emerge from bankruptcy this summer.

"This agreement underscores our senior secured noteholders' confidence in our ability to position ourselves for continued profitable growth," chief executive officer Jason Young said in the release.

"Today's restructuring agreement goes a long way toward resolving the burdens of a debt load and capital structure established seven years ago, during a leveraged buyout of the company.

"Operationally, we are also making great progress."

As part of the restructuring, the noteholder group has agreed to set aside up to $24.5 million to fund the company's operations during the Chapter 11 case, as well as after the company emerges from Chapter 11.

Ziff Davis said these funds, together with its current cash reserves and cash flow from operations, will be sufficient to fund its operations during the reorganization process.

The company said the restructuring will also result in a substantial de-leveraging of its balance sheet.

Specifically, $225 million principal amount of senior secured debt, including the senior secured notes, will be exchanged for a new $57.5 million senior secured note and at least 88.8% of the common stock in the reorganized company, according to the release.

In addition, 11.2% of the reorganized company's common stock will be distributed to holders of Ziff Davis' subordinated unsecured notes if that creditor class votes to accept the restructuring.

However, the company said its subordinated unsecured noteholders have not yet agreed to the restructuring. Ziff Davis said it believes the restructuring plan can be confirmed without their agreement.

"In light of the progress we have made with our senior secured creditors, and after careful consideration of all of our alternatives, we have concluded that a court-supervised process will accelerate - and finalize - our restructuring while helping to ensure that current business operations continue," Young said in the release.

"Through this process, we will improve our capital structure and align it with the size of our current business operations. We have great strength in our industry leading brands and products and we believe that this restructuring will allow us to unlock the underlying value of our businesses and achieve our true growth potential."

Ziff Davis has retained Alvarez & Marsal as its financial and restructuring adviser.

According to court documents, Ziff Davis had $313 million in assets and $500 million in debt as of Dec. 31.

The company's largest unsecured creditors include indenture trustee Deutsche Bank Trust Co. Americas, New York, with a $152.5 million claim for compounding notes due 2009 and a $12.28 million 12% senior subordinated notes due 2010 claim and R.R. Donnelly & Sons, New York, with a $3.9 million trade debt claim.

Ziff Davis is a New York-based integrated media company focused on the technology and video game markets. Its Chapter 11 case number is 08-10768.

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