Among other things, the filing said, the company "anticipate[s]" being in default of its credit facility after its October numbers are tallied. Additionally, it may require a $35 million investment from backers Willis Stein & Partners by the end of November. That would come on top of $50 million the Chicago-based financial player poured into the company last July, $15 million of which went towards "an urgent need for an immediate cash infusion," said the 10-Q filing.
According to the terms of its current credit facility-which the company amended in July as results soured-Ziff Davis is considered in default if required leverage ratios-explained in previous filings as debt to earnings before interest, taxes, depreciation and amortization-are not met for two consecutive months. The company did not meet its required ratios in September, and, the filing said, "we expect to exceed the required ratio for October 2001 as well."
If that is the case, lenders could then "declare all outstanding borrowings, together with accrued and unpaid interest to be immediately due and payable," reads a statement in the filing.
The 10-Q filing also relates that because of the September failure to meet its ratios, interest rates under the loan increased 2%, which means, based on current debt levels, Ziff Davis now owes an additional $3.6 million interest annually. An interest payment of $15 million is due Jan. 15. As of Sept. 30, Ziff Davis' total debt was $430.8 million, and "consisted of [$170.8 million] of outstanding term loans and [$10 million] revolving loans under the company's senior credit facility, and [$250 million] of 12% senior subordinated notes due 2010."
A spokeswoman, responding to questions left for Mr. Callahan and VP-Controller David Mullen, declined to elaborate much further on what the company has divulged in SEC filings. She said securities regulations prevented disclosing October's results, and said she could not disclose the leverage ratios specified in its credit agreement.
She did confirm discussions with bankers were underway. "Historically they have been very supportive," she said in an e-mail. "However, we are just beginning the process of those discussions."
A spokesman for CIBC World Markets Corp., lead arranger of Ziff Davis' loan, declined to comment Nov. 23, saying officials familiar with the loan could not be reached.
In an Aug. 30 stock purchase agreement, Ziff Davis said it "anticipate[d] needing further equity investments of approximately [$35 million] by November 30, 2001 in order to sustain its operations." On Nov. 21, the Ziff Davis spokeswoman said executives could not be reached to discuss whether Willis Stein or another investor would supply the $35 million or whether Ziff Davis would need more money going forward.
Ziff Davis' net loss for the quarter ending Sept. 30 was $70.5 million. Net revenue fell 34.8% last quarter vs. a year ago, to $65.5 million, and EBITDA fell 82.2% to $3.2 million. Ad pages were off 47.2%, the company said at the time of a conference call announcing its results.
In August, Willis Stein Founding Partner Avy Stein said: "We will continue to support [Ziff Davis] any way we need to." Ziff Davis, which Willis Stein bought for $780 million in 2000, remains the largest investment in its equity funds, which total around $3 billion.
A Willis Stein spokeswoman Nov. 23 said officials couldn't be reached. She said she could not comment on the status of the investment except to reiterate that Willis Stein "remained committed" to the publisher.
Willis Stein is in the early stages of a rancorous court fight with former Chairman-CEO Jim Dunning, who was ousted in August. The current November SEC filing also references another suit against Ziff Davis from an unidentified former publisher charging breach of contract and fraudulent inducement. The Ziff Davis spokeswoman confirmed it was filed by former Net Economy Publisher Paul Zuccarini. Efforts to reach Mr. Zuccarini or his attorney were unsuccessful.
"We consider this to be a frivolous lawsuit," said Gibson, Dunn & Crutcher attorney Randy Mastro, who is handling the case for Ziff Davis.