American Media Inc. (AMI), publisher of the National Enquirer, Star and Men’s Fitness, plans to file a prepackaged Chapter 11 bankruptcy after a plan to exchange debt for equity failed to win support from a significant number of creditors.
The Boca Raton, Fla., company said the plan involves a debt-for-equity exchange and has the support of about 80% of its bondholders. AMI said it will file the plan in about two weeks and seek to emerge from bankruptcy in less than 60 days.
The bankruptcy plan will reduce AMI’s debt to just over $500 million, leaving the company with plenty of cash flow to cover interest payments and reinvest in the business, AMI said. When the company emerges from bankruptcy, its debt will be a little more than four times its expected earnings before interest, taxes, depreciation and amortization.
AMI is just one of many media companies, especially print media, who have been forced to file bankruptcy because of declining advertising revenue and shrinking readership. A restructuring done in 2009 by the AMI company’s debt from $1.1 billion to $825 million; but it was still not enough to put the company in the black and on the road to financial recovery. And some analysts say that if AMI wants to survive in the changing environment of print media they need to create an effective strategy for combating or joining the rising competition coming from the internet. The Chapter 11 bankruptcy filing may allow them to do just that by giving investors the confidence they need to invest in the company and offer them the opportunity to explore new, more viable business models upon their exit from bankruptcy.