Bondholders who are preparing to take over tabloid publisher American Media for a mere $2 million in cash are relinquishing virtually none of the underlying $513 million debt load currently sitting on the books.
The only break for the cash-strapped company still headed by CEO David Pecker will be waivers on some of the interest payments due over the next year — but not forgiveness of the entire note.
The move means that the bondholders led by Chatham Asset Management, a New Jersey hedge fund, will still have AMI on the hook for the bulk of the debt even as the bondholders become the main shareholders of the stock as well.
Leon Cooperman, chairman of Omega Charitable Partners, is also said to be in on the bondholder takeover.
Current stockholders, including Marc Lasry’s Avenue Capital, Angelo Gordon, and Capital Research and Management will take the $2 million but will see all their equity wiped out if the deal revealed in a Securities and Exchange Commission filing on Wednesday is completed within the next 30 days.
Bondholders are receiving about $45 million a year in interest payments, which takes up a big portion of AMI’s free cash flow.
After the buyout by bondholders is completed, they are pledging to put enough money into the company to have at least $10 million in liquidity at all times in the 12 months following the merger.
The existing shareholders were clearly unwilling to invest that money in the face of the new cash crunch brought on by the bankruptcy of magazine wholesaler Source Interlink. AMI told Moody’s that the disruption in magazines reaching retail outlets caused by the Source shutdown could crimp sales by up to $20 million this year.
Pecker is expected to stay on as CEO, but the old board will be replaced. Andy Russell, CEO of Trigger Media, who was an outside director on the AMI board, resigned his seat three weeks ago.