Magazines: Cash-strapped Ziff Davis wins breather from bank

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Financial player Willis Stein & Partners bought its troubled tech publisher Ziff Davis Media a little more time.

Faced with a $15 million interest payment that Ziff Davis couldn't cover alone, Chicago-based Willis Stein and the New York publisher won up to a $40 million extension on what Bart Catalane, Ziff Davis' chief operating officer and chief financial officer, said was $181 million of bank debt. The extension will essentially be covered by Willis Stein, via buying a chunk of the debt-of which the company will immediately use $16 million. In a public filing dated Nov. 14, Willis Stein said it would put $25 million into the company by the end of January under certain conditions.

The company also won forbearance from its lenders until March 15, meaning the lenders cannot seek any remedies available to them related to the company being in default of some bank covenants. Mr. Catalane said "the goal is to work to a comprehensive amendment" of the covenants by then.


A press release announcing how the bond payment was met included the following passage: "The company anticipates that in light of the current recessionary environment it will need to obtain through either additional investments or further borrowings under its senior credit facility to meet its future working capital and debt service requirements."

For the quarter ending Sept. 30-the most recent it has reported results for-Ziff Davis posted a net loss of $70.5 million, with revenue down 34.8% to $65.5 million, and earnings before interest, taxes depreciation and amortization (EBITDA) down 82.2% to $3.2 million.

The publisher also hired bankers Greenhill & Co. to assist it in debt reduction, although Mr. Catalane denied that this may mean imminent divestitures.

"We are not looking at any sale of assets," he said. "We are looking at talking to banks and bondholders about a way of recapitalizing the debt." The lead lender for Ziff Davis is CIBC World Markets.

While Ziff dealt with its most pressing problem, it remains vulnerable to "vulture" investors buying up the debt and pressuring management to break up the company. One deal-side executive suggested such sharks are already circling. "It's a tough situation," the executive said.

The Jan. 15 interest payment was on $250 million of senior subordinated notes due 2010. The next payment on those notes is due July 15. While the company now apparently has the wherewithal to make that payment, Mr. Catalane did not hold out much hope for the tech markets turning around by then, or anytime in the foreseeable future.

"A lot of people characterize it as bumping along the bottom," he said. "Some categories look a little bit better. Others look a little bit worse. No one will call a trend."

Mr. Catalane said the company is currently posting positive EBITDA for what he called its "core publishing holdings." But he conceded that was not the case for titles CIO Insight, Baseline and Net Economy, or among its Internet division.

`good to be the underdog'

One executive familiar with Ziff used an analogy to describe the situation. "You're in the boat, and the boat is leaking. And there's sharks all around you. As long as you can stay in the boat, stay. There's no advantage to anyone doing anything else."

Asked to respond to such sentiments in the marketplace Mr. Catalane was nonplussed. "Those people predicting our demise A) don't understand Willis Stein, and B) apparently don't understand the value of the franchises and the brand equity we've got here. And most importantly, they underestimate the ability of the management team.

"It's good to be the underdog. If [doubt about the company's prospects] is the case, then great. Underestimate us."

Mr. Catalane said management's long-term goal is to double the size of the business within three years.

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