F+W Publications Sends Up Red Flag To Investors

F+W Publications warned lenders last week that it may breach covenants on its $400 million credit, causing the company's second lien to drop more than 10 points. As CIN went to press Friday, lenders were preparing for an 11:30 a.m. conference call to get to the bottom of the company's problems. "Nobody knows what's going on," said one investor before the call. "It looks like quite a mess. If they need an amendment, it will be very expensive."

F+W alerted lenders of its covenant concerns in a memo Wednesday night. Investors speculated the company was having a problem with its inventory accounting because of an IT glitch in an inventory management system. The initial reaction in the secondary market was not good. "It fell off the cliff, I guess they are playing 'Where's Waldo,' as they are looking for the books," an investor said. On Thursday the first lien was listed between 94 1/2 -97 and the second lien was 85-95, but tightened to 85-93 at close, a third investor said. According to Markit, the second lien had been trading at 101-102 at close Wednesday. It is rumored one investor picked up some of the second lien at 85 on the assumption that although there may be a glitch in the system, it is still a real company that sells a lot of product.

The credit comprises a $50 million revolver, a $250 million first lien and a $100 million second lien. ABRY Partners bought F+W from Providence Equity Partners for $500 million in July. JPMorgan and Credit Suisse First Boston did the staple financing, leading the $400 million deal for the transaction. Peggy Koenig, a partner at ABRY, and officials at F+W, did not return calls. A CSFB banker declined comment, as did a JPMorgan spokesman.