S&P lowers American Media

Standard & Poor's said it lowered American Media Operations Inc.'s corporate credit rating to SD (selective default) from CCC+, senior secured debt to CC with a recovery rating of 2 from B with a recovery rating of 1, 10¼% senior subordinated notes due 2009 to D from CCC- and 8 7/8% senior subordinated notes due 2011 to CC from CCC-. The recovery ratings on the senior subordinated notes remains unchanged at 6.

The senior secured debt rating was placed on CreditWatch with developing implications, and the 8 7/8% notes were placed on CreditWatch with negative implications.

American Media failed to make the Nov. 1 interest payment on the 10¼% notes. The agency said that while a payment default has not occurred according to the legal provision of the notes, S&P considers it a default when a payment related to an obligation is not made even if a grace period exists.

American Media has proposed an offer to exchange the 10¼% and 8 7/8% notes for new notes at a roughly 40% discount to par value. The transaction would push out the maturities of subordinated debt to 2013 and lower interest expense, but S&P said it would consider the exchange to be tantamount to a default because of the discount.

On the other hand, if the company does not complete such a transaction as the exchange, the agency believes American Media will need to review financing strategy alternatives, which could include filing for Chapter 11 bankruptcy.

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