American Media Operations, owner of The National Enquirer, Star and Weider Publications, has secured covenant relief from lenders, the third modification of covenants since January 2003. Larry Bornstein, senior v.p., general management and planning, said the total debt ratio increased 6.95 to 7.5 and the senior leverage ratio increased from 3 to 3.5.
Moody's Investors Service, which downgraded the bank debt ratings one notch to B1, said American Media's total leverage has climbed to 7.5 times. In its report, Moody's wrote that the downgrade reflects a decline in the company's tabloid newsstand circulation, heavy costs involved in marketing and product development and worsening of American Media's financial leverage.
The company has a $60 million revolver, a $3 million "A" loan, a $304 million "C" loan, and a $133 million "C-1" tranche. JPMorgan is the lead lender. According to Markit, the "C" tranche was quoted 100 1/2-101 1/4. The "C-1" was quoted in a thin market at 101-101 3/4. American Media also has $150 million of 8 7/8% notes, which were quoted at 95 1/2 and $400 million of 10 1/4% notes.
The company's operating income has decreased 23.65% to $86.8 million from $113.6 million for the prior fiscal year. Moody's wrote that it considers the "company's modest free cash flow generation will not permit any meaningful reduction in debt and that it will be unlikely to reduce its debt level below seven times EBITDA before the end of fiscal 2006."
The company has not only relaunched Star but has just moved the offices of The National Enquirer from Florida to N.Y. and has had some other editorial changes as well, Bornstein said. He said the company plans on "stabilizing the Enquirer and growing its portfolio, including Star magazine."