American Media enters exchange agreement for 13½% second-lien notes

By Caroline Salls

Pittsburgh, Sept. 27 - American Media, Inc. entered into an exchange agreement with holders of roughly 90% of its 13½% second-lien notes, according to a news release.

The company said these holders will exchange their existing second-lien notes for a new series of 10% second-lien notes due 2018 with a payment-in-kind feature.

As a result of the exchange, American Media is expected to save about $12 million per year in cash interest payments over the next three years.

The company said it agreed to use this savings to repurchase its first-lien bonds.

According to an 8-K filed Friday with the Securities and Exchange Commission, $10.6 million principal amount of second-lien notes will remain outstanding after the exchange.

The new second-lien PIK notes are payable in kind at a rate of 10% until the earliest of Dec. 15, 2016, the closing of a refinancing of the company's 11½% first-lien senior secured notes due 2017 or the occurrence of specified events of default related to the application of the cash interest savings and a right of first offer, at which point the interest payable on then outstanding principal amount of the new second-lien PIK notes will be payable at a cash interest rate of 13½% until the June 15, 2018 maturity date.

"This exchange will reduce total debt and allow us to further invest in digital opportunities and rapidly growing media products, including Shape, Men's Fitness and our new book-publishing venture," American Media chairman, president and chief executive officer David J. Pecker said in the release.

"It will also increase AMI's financial flexibility.

"This is a watershed event for AMI. Some of our largest bondholders are recognizing the long-term strategic plan of management, and this transaction improves our liquidity, assists in future investments and provides a path to unlock value for all stakeholders."

First-lien options

Subject to some exceptions, cash interest savings resulting from the exchange of the existing second-lien notes must be used to repurchase first-lien notes until the cash interest rate conversion date.

The participating holders have a right of first offer to sell any of their first-lien notes to the company before it repurchases the first-lien notes from any other holders, including under open market repurchases, the 8-K said.

Also under the exchange agreement, if the company completes a refinancing of the first-lien notes, it can require additional exchanges at its option.

Upon completion of a refinancing of the first-lien notes, the company may require the participating holders to exchange up to $55 million in total principal amount of the first-lien notes for new second-lien PIK notes or, alternatively, new second-lien cash pay notes to be issued at a future date and/or require the holders of all new second-lien PIK notes to exchange all of their new second-lien PIK notes for new second-lien cash pay notes.

In the event of the optional second-lien note exchange, some of the participating holders will have the right to designate an independent director to American Media's board under specified conditions.

The exchange agreement is expected to close next week and is subject to customary closing conditions.

American Media is a New York-based publisher of celebrity journalism and health and fitness magazines.

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