After weeks of feverish negotiations, American Media’s bondholders yesterday reached a bailout agreement with the publisher of the National Enquirer, Star and Shape, The Post has learned.
The deal cuts $227 million off the company’s debt and keeps it out of Chapter 11.
Under the agreement, bondholders who originally put in $600 million will now get only about half that – $342 million in newly issued debt that doesn’t come due until 2013.
“It gives us the flexibility and freedom we need to move the company forward,” said CEO and chairman David Pecker, who, under the deal, retains his positions but will be dealing with a new board of directors. “This is a new beginning for American Media.”
The total debt load drops to $842 million from $1.07 billion. In exchange for rolling over the debt, bondholders will get 95 percent of newly issued stock and will control a new seven-member board that is expected to be named shortly.
Roger Altman’s Evercore, which had a 20 percent stake in the company, and Thomas H. Lee Partners, which owned 62 percent of the equity, will see their investments of $200 million and $300 million, respectively, essentially written off.
They and a few other stockholders, including Pecker, will now have to split the remaining 5 percent of the company. New owners now include Angelo Gordon, Avenue Capital Management II Ltd, American High Income Trust, Credit Suisse LLC, and Regiment Capital.
Pecker came to tentative terms with the bondholders last week, after weeks of tense negotiation. Twice last week the deadline to reach an agreement with bondholders had to be extended. Bondholders rejected the original proposal that would have left Evercore and THL Partners in control.
If a deal was not reached by today, it would have put the company in default on its $500 million bank loan covenants and triggered an automatic default and almost certain bankruptcy filing. Pecker had argued that a bankruptcy would have devalued the company even further and diminished the amount of money that could be recouped by any of the lenders.
Brad Pattelli, managing partner of Angelo Gordon & Co., said in a statement, “We are fortunate to be able to put David and the organization in a position to optimize the value of a truly unique collection of assets and brands.”
One added wrinkle near the end of the negotiations was the effort by two wholesalers to extract higher fees from publishers to get titles to retailers. The effort threatened to interrupt delivery of some celebrity weeklies to major retail outlets such as Wal-Mart and Safeway stores this week.
At press time, it appeared that Star and the National Enquirer would avoid getting snagged and would still find a way to reach wholesalers. Pecker, the one-time top executive at Hachette Filipacchi Media, purchased AMI for $850 million in 1999 and took it private with backing from Evercore.
Thomas H. Lee Partners came on board several years later as an investor when the company bought the old Weider Publications, owners of Shape, Muscle & Fitness and Men’s Fitness.
The company hired Bonnie Fuller as a $2-million-a-year editorial director, primarily to convert Star from a supermarket tabloid into a glossy. The National Enquirer also went through a radical overhaul as Pecker tried to staffup with British Fleet Street reporters only to give them all the boot when circulation didn’t increase.