Standard & Poor’s earlier this week slammed tabloid publisher American Media for having what was termed “unsustainable capital structure over the intermediate to long term.”
The publisher, which has $469 million in long-term debt, could default sometime next year without a major restructuring, S&P said in the report.
“Our simulated default scenarios contemplates a default in 2015, resulting from an accelerated decline in circulation and advertising revenue,” S&P said.
The company is fighting back, claiming the default is a “doomsday scenario” that would happen only if the company’s earnings declined by 15 percent over the next year.
CEO David Pecker is still insisting that the company will come “very close” to meeting the goal it promised bondholders in February — to produce between $107 million and $110 million in earnings before interest, taxes and amortization for the year ending March 31.
Pecker also said the company would come close to its target revenue goal of $350 million to $370 million.
AMI had renegotiated its second lien notes in October, reducing them from 13.5 percent to 10 percent — but with interest payable only at the end of the note on Dec. 15, 2016 — or with the retirement of the company’s 11.5 percent first-tier lien notes.
The reason the second-tier bondholders are willing to help generate an extra $12 million in cash flow that can be channeled into retiring first-tier debt is because the principal bondholder of both classes of debt is Chatham.
The company said it already used savings to buy back $2.3 million of bonds in February and will make another first-tier loan retirement of $6 million at year end.
“Standard & Poor’s did not account for the paydown for the debt deal we did,” said Pecker. S&P still has a CCC+ rating — far below investment grade with an outlook of “negative.”
Insiders have been grumbling for months that the company is making its numbers only through cuts and more cuts.
One of its flagship publications, the National Enquirer, has had to cut back to one staff reporter in Los Angeles.
And last month, it also had to make an embarrassing admission in a story surrounding the suicide of Phillip Seymour Hoffman. The paper interviewed a person it believed was David Bar Katz but was actually an imposter, who was claiming to be Hoffman’s gay lover.
The real David Bar Katz sued for $50 million.
The Enquirer, in a retraction published in the New York Times, said it made a “good faith error by publishing an interview with a person who falsely and convincingly claimed to be Mr. Katz.”
The real Katz withdrew his $50 million lawsuit after AMI agreed to fund the American Playwriting Foundation that will award an annual prize of $45,000 to fund an unproduced play.
Pecker said the company purchased an annuity for just under $1 million that will fund the annual payout.
The setback was very demoralizing internally.
“That is the kind of thing that would not have happened a few years ago,” one source said of the mix-up, blaming it on not having enough reporters to knock on doors.