Bankruptcy

Is Anybody Reading? Ziff Chap. 11 Cites Lost Business

Publisher of business-to-business titles like PC Magazine is encouraged that restructuring will let it reemerge this summer.
Stephen TaubMarch 6, 2008

Ziff Davis Media Inc. filed for Chapter 11 bankruptcy, but pledged to emerge by this summer.

. The indirect wholly-owned subsidiary of Ziff Davis Holdings Inc. — publisher of technology and video game magazines, including PC Magazine, — said it simultaneously reached a restructuring agreement with an ad hoc group of holders of more than 80 percent of its senior secured floating rate notes. That move substantially reduces the company’s funded indebtedness.

Under the restructuring, $225 million principal amount of senior secured indebtedness (including the senior secured notes) will be exchanged for a new $57.5 million senior secured note and at least 88.8 percent of the common stock in the reorganized company.

The company cited a decrease in revenue from print advertising and subscriptions as contributing to its decline, the Associated Press reported.

The New York Times pointed out that, according to court filings, the company had total debt of $500 million to $1 billion, and total assets of $100 million to $500 million.

The restructuring provides for 11.2 percent of the reorganized company’s common stock to be distributed to holders of the company’s subordinated unsecured notes if the class votes to accept the restructuring.

Holders of the company’s subordinated, unsecured notes have not yet agreed on the restructuring, Ziff said. However, the company said it believes the restructuring plan can be approved by the Court without their agreement.

The company said that it expects operations to continue as usual during the reorganization process and, as part of the restructuring, the ad hoc noteholder group has agreed to set aside up to $24.5 million to fund the company’s operations during the Chapter 11 case as well as after the company emerges from Chapter 11.

These funds, together with the company’s current cash reserves and cash flow from operations, will be sufficient to fund its operations during the reorganization process, the company assured in a press release.

It also said the restructuring will result in a substantial de-leveraging of the company’s balance sheet.

“This agreement underscores our Senior Secured Noteholders’ confidence in our ability to position ourselves for continued profitable growth,” said Jason Young, Chief Executive Officer of Ziff Davis Media.

The AP noted that Ziff Davis, a major beneficiary of the Internet boom in the late 1990s, saw print advertising revenue fall to $40 million last year from $215 million in 2001. Total revenue dropped to $76 million last year from about $300 million in 2001, according to the wire service.

Ziff Davis’ plight underscores the challenging market for publishers dependent on print as advertisers shift to electronic and other media, sometimes devastating print advertising revenues while failing to make up for the lost business on the Internet. Online ad rates at this point have not been as lucrative.

Analysts not that it is imperative for companies in such situations to minimize leverage and remain lean and nimble.