Crown Media Holdings announces details of recapitalization deal

By Caroline Salls

Pittsburgh, July 2 - Crown Media Holdings, Inc. announced the details of its recapitalization transactions with Hallmark Cards, Inc., H C Crown Corp. and affiliates, which was completed on June 29, according to an 8-K filed with the Securities and Exchange Commission.

As previously reported, 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.

Conversion details

According to the 8-K, the H C Crown debt was converted into $315 million principal amount of new debt, including a $200 million term loan A bearing interest at 9½% through Dec. 31, 2011 and increasing to 12% for Jan. 1, 2012 through Dec. 31, 2013 and a $115 million term loan B bearing interest at 11½% through Dec. 31, 2011 and increasing to 14% thereafter.

The H C Crown debt was also converted into 185,000 shares of the company's series A convertible preferred stock and 254.89 million shares of common stock, resulting in H C Crown owning 90.3% of the class A common stock.

The conversion price was $2.5969.

Share issuance

At closing, Crown issued 185,000 shares of preferred stock with an initial conversion price of $2.5969. These shares would be convertible into an estimated 71.24 million shares of class A common stock.

Crown also issued 254.89 million shares of class A common stock, which was equal to the $1.162 billion of debt as of the closing, minus $500 million divided by the conversion price.

As a result of the mergers of Hallmark Entertainment Investments Co. and Hallmark Entertainment Holdings, Inc. into Crown Media, the company issued to H C Crown, Liberty Crown, Inc., VISN Management Corp. and JP Morgan Partners (BHCA), LP a total of 83.82 million shares of class A common stock.

The 83.82 million shares of Crown's class A and class B common stock owned by Hallmark Entertainment before the closing were cancelled.

Immediately following the closing, Crown Media said H C Crown holds 324.89 million shares of class A common stock, zero shares of class B common stock and 185,000 shares of preferred stock.

Other transactions

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 a stockholders' agreement under which some Hallmark entities agreed 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.

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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