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American Media, the publisher of the National Enquirer and Star magazine, filed for Chapter 11 bankruptcy protection yesterday as part of a previously disclosed plan to slash debt.
The filing has to be a disappointment to Chief Executive David Pecker, who had tried to raise $625 million of new bank financing with a road show that began in July to avoid a trip through the courts.
Despite the ending that he had long sought to avoid, Pecker said the new filing would leave the company in the best shape in years.
“Publications will function seamlessly, staff will be unaffected by the reorganization and customers should not notice any difference during this short process,” Pecker said, adding that AMI will be “a stronger and healthier company following the restructuring.”
The company said the prepackaged plan will reduce its debt by $355 million, to $525 million, down from $880 million.
AMI said that holders of more than 75 percent of the bond debt and lenders with more than 70 percent of the bank debt had approved the prepacked bankruptcy filing yesterday in US Bankruptcy Court in Manhattan.
It included 17 different corporate entities under the American Media Operations umbrella.
The company listed assets of $668 million and total liabilities of $1.2 billion, when money owed to creditors such as printers and paper companies was added to its bank and bondholder debt.
AMI also filed a variety of motions that would allow it to pay employees, customers and vendors during the process.
In the run-up to the bankruptcy, the company had sought to persuade its bondholders to let it off the hook by taking a haircut on their debt in exchange for boosting the company’s fiscal health.
An early proposal would have given bondholders a one-time cash sweetener of $100 million to coax them to go along with the restructuring. But the deal soured without the new bank financing for the payout.
At least one key bondholder, Oppenheimer, which ranked fourth in the pecking order behind Avenue Capital, Angelo Gordon and Capital Research, would not go along with the plan without the payout, sources said.
AMI’s bondholders, faced with an earlier default in 2008 on their debt, had already seized control of 95 percent of the common stock.
Under the new deal, the former bondholders will see their total stock equity rise slightly to 98 percent.