Crown Media completes recapitalization, reduces debt to Hallmark Cards

By Caroline Salls

Pittsburgh, June 29 - Crown Media Holdings, Inc., owner and operator of Hallmark Channel and Hallmark Movie Channel, has completed the previously announced recapitalization transactions with Hallmark Cards, Inc. and its affiliates, according to a news release.

Crown Media said the recapitalization included the restructuring of $1.162 billion due to Hallmark Cards and its affiliates into $315 million principal amount of new debt instruments due Dec. 31, 2013, the conversion of $185 million of the debt into convertible preferred stock and the conversion of the balance of the debt into 254.89 million shares of class A common stock.

"We are pleased with the consummation of the recapitalization, which is a positive and important development for our company," Crown Media president and chief executive officer Bill Abbott said in the release.

"The significant reduction in our outstanding debt will help us maintain the operating health of our company and position us for future financial success."

Other aspects of the recapitalization include a credit agreement for the new debt, an amendment to a tax sharing agreement with Hallmark Cards, a registration rights agreement, an increase in the authorized class A common stock to 500 million shares and a decrease in the authorized preferred stock to 1 million shares.

The recapitalization also included mergers of two intermediate holding companies with and into the company and a stockholders' agreement under which some Hallmark entities agree not to acquire additional shares of class A common stock through Dec. 31, 2013 and agreed to restrictions on their ability to sell or transfer the class A shares.

Along with the closing of the recapitalization, Crown Media said it has also amended its credit facility with JP Morgan Chase Bank to continue a $30 million revolving credit facility through June 30, 2011.

The company said the facility will provide additional short-term liquidity.

Stockholder objection

As previously reported, Crown Media said in March that a minority stockholder objected to the recapitalization agreement, arguing that the transactions would unfairly dilute the economic and voting interests of Crown Media's minority stockholders.

The objecting stockholder filed a lawsuit in July 2009 in the Delaware Court of Chancery against Crown Media's board of directors and Hallmark in connection with a recapitalization proposal received in May 2009.

The parties to the lawsuit subsequently entered into a stipulation under which Crown Media agreed not to complete the recapitalization until not less than seven weeks after providing the plaintiff with a notice of terms of the proposed transaction, including copies of the final transaction agreements.

Crown Media said in March that the recapitalization agreement followed the provisions of the earlier term sheet.

The plaintiff also indicated in March that it would follow through with the lawsuit if the company executed definitive documents for the recapitalization.

Based in Studio City, Calif., Crown Media owns and operates pay television channels, including the Hallmark Channel and Hallmark Movie Channel.

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