Court recommends approval of Ziff Davis' second amended disclosure statement

By Rebecca Melvin

New York, April 29 - Almost before the ink was dry, Ziff Davis Media Inc.'s revised disclosure statement, reflecting changes leading to a consensual Chapter 11 plan of reorganization, was approved Tuesday by the U.S. Bankruptcy Court for the Southern District of New York.

Under the new amended joint plan, which was filed early Tuesday along with the disclosure statement, the senior secured noteholders will receive 90% of the new common equity in the company, plus cash and a new secured note of no more than $57.5 million, and unsecured subordinated noteholders will receive 10% of the reorganized entity's stock.

The allocation represents an increase for the senior secured noteholders from 88.8% under the old plan, and a reduction for the subordinated noteholders from 11.2%. However, the subordinated noteholders will also now be provided with warrants for up to an additional 5% of stock.

In addition, a provision in the original plan was removed that would have forced subordinated noteholders to forfeit their recovery if they voted against the plan.

Also under the amended plan, trade general unsecured claims, or class 6 creditors, will receive a cash pool of $1.25 million, or more than double the $500,000 cash pool under the old plan. And the proposed payoff for the convenience class claim, a relatively large class 7, was reduced to 50% from 100%, company counsel Mark Thomas of Winston & Strawn LLP said.

Another change in the plan is that a board member may be appointed by MHR Institutional Partners III LP, which upon emergence will be a holder of 13% to 15% of the company, Thomas said.

The initial board will have seven members, up from six under the old plan, with five appointed by the ad hoc senior secured noteholder group, and one appointed by MHR. The acting chief executive officer will also have a seat on the board.

The second amended disclosure statement was the result of rigorous negotiations among Ziff Davis, its official committee of unsecured creditors, the ad hoc committee of senior noteholders, and others, including MHR, which began the first week of April, Thomas said.

The ad hoc committee represents more than 80% of the company's senior secured floating-rate notes while the official committee includes trade creditors and holders of more than 60% of the $186 million of subordinated notes.

Ziff Davis said it will ask the court to confirm the plan in June and added that it hopes to exit bankruptcy shortly after that.

Ziff Davis, publisher of PC Magazine and other technology and videogame oriented media, volunteered to meet with the creditors at that time to go over revised forecasts for 2008, 2009 and 2010, and those forecasts were a catalyst for change, he said, indicating that the company's results are being hurt by macroeconomic trends.

Issues related to the new shareholder agreement remain open, and a status hearing might be required later this week or next week to resolve those issues, but judge Burton Lifland recommended approval of the disclosure statement, saying he believes the record demonstrates that it satisfies the statute.

"To the extent that there remain objections - one characterized a limited objection, I am overruling them with respect to disclosure statement," Lifland said, adding that the remaining objections "fall under the rubric of tweaking. They are mechanical fixes that I assume can be reached among the parties."

The limited objection to which Lifland was referring was from indenture trustee Deutsche Bank Trust Co. Americas, which had filed a limited objection to the disclosure statement and plan relating to administrative issues outstanding with regard to the notes, including details such as setting a record date.

As previously reported, the original plan was negotiated with holders of 80% of the $225 million in senior secured floating-rate notes prior to the March 5 filing.

The secured lenders are owed $242 million, and the subordinated noteholders are owed $186 million. The subordinated noteholders were contesting the disclosure statement because they had disagreed with the value of the company after reorganization.

Among the ad hoc senior secured noteholder group are Blackport Capital Fund Ltd., Dune Capital LLC, MacKay Shields LLC, Perry Corp., Mast Capital Management LLC, Strategic Value Partners, LLC, Stonehill Capital Management LLC and Tennenbaum Capital Partners LLC.

Ziff Davis is a New York-based media company with about 250 employees. It filed for bankruptcy on March 5, and its Chapter 11 case number is 08-10768.

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