AMERICAN Media moved a half step closer to being the next major media company to file for bankruptcy.
On Dec. 1, the publisher of Star magazine and the National Enquirer missed the final deadline to make a $21.2 million interest payment, and is feverishly negotiating with bondholders of $1.1 billion of its debt.
Two industry sources told Media Ink that the company has retained bankruptcy lawyers, suggesting that it could soon be following the path taken earlier this week by Sam Zell‘s Tribune Co., which filed for Chapter 11 bankruptcy protection.
However, a filing could be avoided if bankers – who have been pressuring the bondholders to give up more of their stake in the company – suddenly come to terms.
Moody’s reported that on Dec. 1, American Media entered into a “forbearance agreement” with its lenders and bondholders under which if it fails to pay interest on its 10.25 percent debt, it “would not constitute an immediate event of default under the terms of the notes.”
“It sounds like there is a standoff between the bondholders and the bankers,” said one source.
If the restructuring deal is approved, it would effectively wipe out stakeholders Evercore Partners and Thomas H. Lee & Partners, and turn over 95 percent of the stock to those holding the debt. The old shareholders would retain just 5 percent of the company under the new transaction.
While the bondholders seemed willing to go along with such an arrangement, bankers wanted bondholders to give up more than the $250 million. They have until Dec. 15 to reach an agreement.
The banks want them to take more than a 40 percent “haircut” under the current restructuring proposal.
The bond-interest payment was actually due on Nov. 1, but the company had a 30-day grace period, which expired Dec. 1.
American Media has always been cash-flow positive, but has had trouble servicing the debt it took on as CEO David Pecker cobbled together the company.
Though the company on Nov. 1 had $34.6 million in cash on hand, which could have satisfied the $21.2 million payment, the company missed the payment with a strategy in mind.
“[Pecker] knew the bondholders were ei ther going to own it, or he’s going into bankruptcy, so why make the payment,” said one source.
Bad p.r.
The cutbacks at Condé Nast Publications yesterday hit the public-relations department.
Andrea Kaplan, a Condé veteran who handled the old Fairchild Publications since 2000, is out.
“It’s a sign of the times,” shrugged Kaplan, who will be sticking around for several more weeks.
Fairchild, once an independent company and then an independent subsidiary in the Newhouse family-owned Advance Publications empire, has ceded more of its territory to the glitzier Condé Nast sibling in recent years.
That essentially has left Fairchild with the editorial side of W and Cookie, and a number of trade titles, including fashion bible Women’s Wear Daily. The men’s fashion trade publication, DNR, which was actually the very first magazine launched by Fairchild over 100 years ago, was recently folded into Women’s Wear Daily, slashing about a dozen jobs.
Meanwhile, inside Condé Nast’s 4 Times Square headquarters, two publicists at Gourmet, Karen Danick and James Humphrey, were released, as was GQ’s West Coast p.r. person, Beth Andrews.
“It would be unrealistic to think that the p.r. department, like the rest of the company and our magazines, was not impacted by this economy,” said Maurie Perl, Condé Nast’s p.r. director. “As you know we have all been asked to manage our staffing needs at a lower level.”
Price cut
Kent Brownridge, general manager of OK!, strikes again.
After pushing through an aggressive price hike to $3.49 earlier this year, the company is now backing off that move and cutting its price to $2.99.
That will place it a full $1 less than People, Star and Us Weekly, all of whom hiked their prices earlier this year, and puts OK! at the same price point as two competing Bauer Publishing titles, In Touch and Life & Style.
OK! lost nearly $35 million in 2007 and many speculate the hemorrhaging this year would match the year-ago figure.
“It comes as no surprise to anybody who had a heartbeat that our country and our economy are in pretty bad shape right now,” said Brownridge.
“Some industries, like retail and travel, had adapted to the new realities” by lowering their prices,” he said. “Some industries are acting ostrich-like. The magazine industry can be counted among the ostriches.”
Of course, critics point out that OK! has had some very poor selling issues in recent weeks, and that a lower price will stimulate newsstand sales to some extent.
Brownridge, who earlier was the longtime general manager of Us Weekly owner Wen ner Media, said that in the fourth quarter of 2005 the six celebrity week lies sold 5 million units a week, and generated $195 mil lion in retail revenue.
By the fourth quar ter of 2008, he said the group was selling about 4.2 million, but due to the higher cover prices was still generating about $195 million in retail revenue.
Newsweak
Newsweek is said to be considering a dramatic drop in its circulation.
Folio.com said that the Washington Post-owned weekly has been considering a circulation rollback since the summer.
As the economy has worsened, one scenario now under consideration is to slash the rate base – the amount of circulation a magazine promises its advertisers it will deliver each week – by as much as 1.6 million.
The current circulation is 2.6 million, after the mag cut its rate base by 500,000 in Novem ber 2007.
Folio noted that the strategy is risky and could backfire, as Newsweek executives don’t want to be per ceived as the next U.S. News & World Report, the money-losing, Mort Zuckerman-owned magazine that is becoming a monthly next year. keith.kelly@nypost.com