American Media amends tender for 10¼% notes, 8 7/8% notes, misses interest payments, files late 10-Q

By Jennifer Chiou

New York, Jan. 9 - American Media Operations, Inc. said it again amended its tender offer and consent solicitation for about $570 million of its senior subordinated notes, consisting of $400 million of its 10¼% series B senior subordinated notes due 2009 (Cusip 02744RAH0) and $14,544,000 of its 10¼% series B senior subordinated notes due 2009 (Cusip 02744RAM9) as well as $150 million of its 8 7/8% senior subordinated notes due 2011 (Cusip 02744RAK3) and $5,454,000 of its 8 7/8% senior subordinated notes due 2011 (Cusip 02744RAP2), according to a 10-Q filing with the Securities and Exchange Commission.

The company amended the offer to finance the purchase of the notes using new notes in addition to its offer of 5.7 million of its shares, representing 95% of its common stock.

In order to tender notes in the offer, a holder must agree to purchase the offered new notes and shares for a purchase price equal to the consideration in the offers and solicitation.

The company is offering $21,245,380 of its senior PIK notes and $300 million of its senior subordinated notes as well as the 5.7 million of shares.

American Media said it expects to incur about $35 million of fees relating to the refinancing of the notes and the amendment of the credit agreement.

Concurrently with the offer, the company had been offering to noteholders:

• 250,000 mandatorily convertible units comprised of $250 million of 12% senior notes due 2013 and $15.91 million principal amount at maturity of special senior subordinated discount notes due 2013; and

• Up to $340,364,800 principal amount at maturity of 10¼% mandatorily convertible senior subordinated discount notes due 2013.

American Media, Inc. was also offering up to 320,000 warrants to purchase a like number of shares of its class A common stock, representing up to 20% of its currently outstanding shares of common stock.

Defaults with ratio, interest payments

In addition, in connection with the consent agreements American Media entered into in March 2006 with holders of a majority of its notes, the company failed to meet the specified leverage ratio of 7.25:1 required under the indentures as of Sept. 30. As a result, on or prior to Dec. 15, 2009, the company said it is required to issue $50 million of new equity to satisfying the ratio on a pro forma basis.

The company also said that its failure to make the required semiannual interest payment on its 10¼% notes due May 1, 2009 resulted in an event of default.

American Media also said it expects to fail to make the required semiannual interest payment for its 8 7/8% notes due 2011 when due on Jan. 15.

In addition, the company failed to file the quarterly report on form 10-Q for the period ended Sept. 30 when due on Nov. 14. As a result, the company said it entered into forbearance agreements with existing holders of about 81% of the principal amount of 10¼% notes due 2009 and about 69% of 8 7/8% notes due 2011.

Discussion with lenders

The company reiterated its earlier statement that discussions are continuing with lenders holding more than a majority of the borrowings under its credit facilities and bondholders holding more than a majority of each series of notes and believes "substantial progress continues to be made toward achieving a financial restructuring and significant delevering of the company."

In the filing, the company detailed that the amended credit agreement will permit the issue of the notes being offered as well as the following:

• The maximum senior secured leverage ratio and the minimum interest expense coverage ratio levels will be changed;

• The variable component of applicable interest rates will be subject to a floor equal to, in the case of Eurodollar loans, 3.5% and, in the case of alternate base rate loans, 4.5%;

• Interest rate margins will increase to 550 basis points in the case of alternate base rate loans and 650 bps in the case of Eurodollar loans;

• The term loans will be subject to hard call protection for three years following the amendment and restatement of the credit agreement;

• Subject to limited exceptions, the company will not be permitted to repay, prepay, redeem or acquire any notes;

• 75% of any equity proceeds raised by the company or subsidiaries, other than from certain holders of the notes, must be applied to the mandatory prepayment of term loans;

• Substantial limitations on reinvestment rights from the proceeds of asset dispositions or casualty events will be added, which may result in more extensive prepayment requirements;

• The portion of excess cash flow that must be applied to the mandatory prepayment of term loans will increase from 50% to 75%; and

• The baskets for permitted indebtedness, investments, restricted payments and capital expenditures will be reduced.

Offers, solicitations

The offer ends at 5 p.m. ET on Jan. 15, pushed back from 11:59 p.m. ET on Dec. 15. The deadline was previously pushed back from Nov. 21, Oct. 28 and before that Sept. 30 and Sept. 25.

American Media previously extended the tender on Nov. 21. In addition to moving back the deadlines, it made the comments about "substantial progress" on restructuring and said the offer was open to holders of record as of 5 p.m. ET on Dec. 9 instead of Nov. 17 previously.

As previously announced, prior to launching the offer, the company said it entered into agreements with holders of 32.6% of the outstanding 2009 notes and 50.8% of the outstanding 2011 notes under which the holders have agreed to tender their notes. The company added that those agreements have expired.

Under a previous amendment, American Media is now permitted to waive the supplemental tender condition for either of the offers. The change means it can complete the tender without receiving the necessary consents. Should that occur, the notes will not be amended, but holders will still receive the full payment.

The tender is split into two: one for the 10¼% notes and one for the 8 7/8% notes. The waiver could apply to either or both.

In addition, American Media previously amended the terms of the convertible notes on offer to include holders of record as of Oct. 27 and to allow up to $18 million of additional notes to be issued.

As announced on Aug. 27, American Media is tendering for the notes and soliciting consents to the note indentures to eliminate substantially all of the restrictive covenants, certain events of default and other related provisions.

For each $1,000 in accreted value of 10¼% mandatorily convertible senior subordinated discount notes, American Media said it will issue one warrant to the purchaser. Under the terms of the convertible securities, when more than $373,089,600, or 90%, of the 2009 notes and in excess of $77,727,000, or 50%, of the 2011 notes are prepaid, redeemed or acquired by the company, each unit will automatically convert into $1,063.64 principal amount at maturity of American Media Operations' new 11½% senior subordinated discount notes due 2013, and each $1.00 principal amount at maturity of convertible senior subordinated discount notes then outstanding will automatically convert into $1.00 principal amount at maturity of the new 11½% discount notes.

The company said it will pay par plus accrued interest in the offer, including a $10.00 per $1,000 principal amount consent payment. To receive the consent payment, the holder must concurrently purchase a specified amount of the securities that are being offered.

The offer is subject to a minimum tender condition of 66.7% for the 2009 notes and 50.1% for the 2011 notes.

Forbearance agreement

On Jan. 7, the company entered into a forbearance agreement with lenders representing a majority of outstanding amounts and commitments under the facility, under which the lenders and the administrative agent agreed, subject to certain termination events, to forbear until the earliest of Feb. 4, the date on which any of the existing notes become or are declared to be due and payable, and the commencement of an insolvency proceeding for the company or any subsidiaries.

The company previously said that its revolving credit facility matures in January 2012 and its term facility matures in January 2013, but both will mature on Feb. 1, 2009 if it does not refinance at least $389.5 million of its 10¼% notes on or before Feb. 1, 2009.

In addition, the revolving facility and the term facility both will mature on Oct. 15, 2010 if American Media does not refinance at least $145.5 million of its 8 7/8% notes on or prior to Oct. 15, 2010, the filing stated.

The effectiveness of the amendment to the credit agreement is conditioned upon the consummation of the tender offers and offerings.

J.P. Morgan Securities Inc. is the dealer manager and solicitation agent (call collect 212 357-0775). MacKenzie Partners, Inc. is the information agent and tabulation agent (800 322-2885 or call collect 212 929-5500).

American Media is a Boca Raton, Fla., magazine publisher.

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