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— Backstory —
A, the owner of 20-plus dailies and 300-plus weeklies, is already operating under a forbearance agreement. Too bad it has bank debt of more than $500 million. B is a television station group affiliated with three networks whose stock has already been delisted from the Nasdaq. It has bonds trading at less than 40 and is yielding more than 50%. C sells music to businesses through a national network. Let's see if it can come up with the $400 million to pay its soon-due debt. As parlor games go, this one's more distressing than amusing. But it's also captivating, at least for media operators who, as former American Media Inc. CFO Jack Craven says, see an environment ripe for "wealth creation."
Craven doesn't like the term vulture operator -- "such a negative
connotation," he says. In a way, though, he and other media operators
are positioning themselves as the precise counterparts to vulture
investors.
That is, they're offering themselves up as executives who, by dint of know-how and hard work, can transform a loan-to-own play into an operating turnaround. "I see myself as being installed as CEO by a hedge fund that acquires a distressed media company through publicly traded debt purchases," Craven says. Then, post-bankruptcy, this debt-owning fund emerges the owner of a company with a cleaned-up balance sheet. And with the removal of financial distractions -- previously so great they were "the entire focus of management," he says -- priorities can revert to operations. Craven's list of potential targets assumes operators overseeing media companies in crises lack the skill set to be their rescuers, even though that wasn't the case at AMI. There, as CFO between 2006 and 2008, Craven brought the publisher of Star Magazine, the National Enquirer and a group of fitness titles into covenant compliance, oversaw four years of regulatory restatements and, through cost cuts, more than doubled Ebitda, to $112 million. After he left, AMI's creditors became its owners. Yet the change in control kept David Pecker and Craven successor Dean Durbin in place as the chief executive and chief financial officer, respectively. Although Craven won't talk about the AMI experience, few expect future media upheavals to be as tolerant of entrenched management. Hence, Craven's call for new leadership at companies like: D, which needs a capital infusion to remain a leading radio broadcaster, magazine publisher and Internet player known for its conservative and family content. Yet its stock trades at less than $2 per share. E, which in bankruptcy got its senior creditors to reduce the $225 million they're owed to less than $60 million. But they'll also get about 90% of the equity once this magazine and Internet publisher emerges. F, which is actively shopping itself in the face of $160 million in soon-to-mature debt. Only the wildly optimistic, however, believe this B2B player with 80 publications and 50 trade shows can cut a deal before being undone by credit obligations. The credit crunch and old media's problematic migration to new media have combined to produce these loan-to-own targets in, Craven contends, unprecedented numbers. Still, of the many out there, the AMI veteran who once worked at Time Inc., Lear's Publishing Inc. and Jobson Publishing LLC prefers that classic coupling: good company, bad balance sheet. Also enticing are media leaders in still-growing categories that have overblown budgets and underdeveloped Internet strategies. In these situations, Craven says, his 20 years of tending to such details as improving the technology mix, reducing print runs, renegotiating printing contracts and streamlining distribution models can quickly boost cash flow. An outsider, unburdened by institutional memory and unaware of pet projects, can also help identify underperforming employees and product lines. And so a fresh set of eyes might still divert what Craven considers a disastrous "developing situation" at: G, a distributor of periodicals, music and books that picked a bad time to expand into publishing -- an expansion that has it owing banks $1.4 billion they've been unable to remarket. A seasoned operator, Craven concludes, might even have kept one of the largest employee-owned media conglomerates from taking on more than $10 billion in debt, which was yielding 40% before its issuer filed for bankruptcy. For reasons of usage, not instinct, let's call this thinly veiled company H. Richard Morgan covers media for The Deal. |
Identify the company behind the letter:
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