American Media Inc., the publisher of the National Enquirer, is getting bailed out by its creditors in a deal that values the company at about $515 million.
The cash-strapped publisher, led by CEO David Pecker, announced the bailout — a “non-binding letter of intent with certain investors” to buy all its outstanding stock — in a regulatory filing on Wednesday.
Most of the deal’s value is based on the creditors who are owed $513 million in debt, taking over as stockholders as well. They are in effect paying only in $2 million in cash to buy the company while the existing $513 million in indebtedness remains in place.
It is the third time in five years that Pecker’s AMI has been bailed out by creditors.
The prospective new owners of AMI — which also publishes Star, The Globe, Men’s Fitness, Shape, Ok! and other titles — were not identified in the filing but are believed to be Chatham Asset Management, a New Jersey hedge fund, and Omega Charitable Partnership, led by Chairman Leon Cooperman.
Neither Chatham nor Omega returned calls seeking comment.
The deal calls for Chatham and Omega to pump $10 million in liquidity into AMI’s starved coffers.
AMI under its current deal is required to semi-annual loan payments totaling about $45 million a year.
On July 8, shortly before the restructuing plan was unveiled, Moody’s had lowered the corporate debt rating to Caa-1 — far below investment grade — and revised the outlook to “negative.” On
Wednesday, it said its debt outlook on AMI was unchanged by the pending buyout of the existing stockholders.
Equity holders wiped out in the bailout — should the deal go through — include Capital Research & Management, Marc Lasry’s Avenue Capital and Angelo Gordon. They had become shareholders after the 2010 prepackaged bankruptcy had converted their original debt to equity.
Those firms either did not return calls or declined to comment.
AMI has been hit by the recent bankruptcy of magazine wholesaler Source Interlink. AMI’s supermarket tabloids rely heavily on newsstand sales — as do its celeb weeklies.
AMI estimated its bad debt exposure to the wholesaler at $5 million to $7 million originally and warned last month that revenue could be cut by $5 million to $10 million while it worked to line up a replacement.
But Moody’s notes that the company now says its Source-related revenue slide could be worse — in the $10 million to $20 million range.
Wholesalers are responsible for trucking magazines from warehouses to stores.
AMI delayed filing its most recent financial results for the year ended March 31, triggering a technical default on its $40 million revolving credit facility.
Under the pending deal, bank lender JPMorgan Chase agreed to a waiver under the existing revolving credit agreement.
In a move that surprised some media watchers, CEO Pecker will remain in place — although the other board members will be replaced.
AMI also gets a go-shop provision that will allow other suitors to make a competing offer, although few observers expect a new white knight to come forward.