Despite locking up overwhelming creditor support of a restructuring agreement prior to filing for Chapter 11, Ziff Davis Media Inc.'s bankruptcy case is shaping up to be a little more contentious than the magazine publisher initially planned. Sure,
Ziff was able to reach an agreement with an unofficial committee of senior noteholders (which represent about 80% of the $225 million in outstanding Ziff bonds), who will vote in favor of the company's yet-to-be filed Chapter 11 plan. And that support alone is almost certain to quell an uprising from subordinated noteholders, who have scoffed at their proposed recovery of 11.2% of reorganized Ziff's new common stock (the senior noteholders will get the rest).
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But now comes Ziff's official committee of unsecured creditors, which on Monday filed objections to several of the debtor's first-day motions, some of which are the most typical of requests in a bankruptcy. The committee -- which includes unsecured creditors such as Concordia Partners LP, indenture trustee Deutsche Bank Trust Co., Joshua Tree Capital Partners, MHR Fund Management LLC and RR Donnelley and Sons Co., among others -- has objected to everything from Ziff's request to pay its vendors to the debtor's employment of restructuring adviser Alvarez & Marsal (its fees might be too high, but the committee isn't sure yet).
The objection that caught the attention of the bankruptcy's chief principals -- Ziff and the senior noteholders -- however, was the committee's beef with Ziff's plan to distribute roughly $95 million to the senior noteholders before a plan is confirmed. Such early distributions to creditors in a bankruptcy where terms of a reorganization plan have already been agreed upon are typical so a debtor can avoid a negative arbitrage on the difference between interest accruing on its cash and interest owed on prepetition debt. But the committee wants time to investigate the notheholders' liens on the cash; an interesting request, because as Ziff and its senior noteholders point out in court filings, a majority of the creditors committee were formerly members of an ad hoc committee of creditors months before the bankruptcy, and even had the same counsel they do now, O'Melveny & Myers LLP.
"In essence, both the members of the prepetition committee and its counsel had months to investigate" the liens, Ziff said. "The debtors believe that such an investigation has already taken place."
Rarely are the terms of a prenegotiated bankruptcy changed after a Chapter 11 filing. And Ziff's general unsecured creditors, with roughly $15 million in claims, have even less standing than the unhappy subordinated noteholders (owed about $173 million). But for a company that boasted it would be in and out of bankruptcy by midsummer, such bickering from creditors is the last thing Ziff needs. - John Blakeley
See related story from TheDeal.com
See petition filing pdf
See Ziff Davis bankruptcy profile from The Deal's Bankruptcy Insider
See Dealwatch: PE-backed bankruptcies
See Dealwatch: Magazines
