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Ziff Davis Gets Breathing Room

On the verge of missing a $15 million interest payment due on junk bonds, Ziff Davis Media has negotiated a forbearance agreement with its bank lenders, freeing the company from its credit obligations for another two months.

With its fate hanging in the balance, the cash-strapped media company announced the forbearance agreement would give it some breathing room through March 15, 2002. As part of the renegotiations, Ziff Davis parent company Willis Stein & Partners has secured $16 million in funding, with an option to draw down on an additional $9 million.

In a statement, Ziff Davis said it would use the $16 million infusion to immediately meet its payment deadline on the $15 million semi-annual interent payment to holders of its $250 million 12 percent senior subordinated notes due in 2010.

Ziff Davis, which publishes the eWeek and Yahoo! Internet Life titles and provides content to CNET Network's ZDNet portal, also made it clear it would shut down unprofitable subsidiaries and lay off staff to reduce its overall debt burden.

It is a sudden turnaround for Ziff Davis Media, which was acquired by Willis Stein & Partners in 1999 for $780 million in cash. The company has now retained merchant bank Greenhill & Co. to help put together a financial recapitalization plan to reduce its debt burden.

The company had slipped into technical default in October on its $180 million revolving credit facility and was forced into negotiations with more than 50 banks headed by principal lenders CIBC, Deutsche Bank Alex.Brown, and Fleet Bank.

With rumors swirling that the company was heading for a bankruptcy filing, Ziff Davis announced the forbearance deal late Tuesday evening. As part of that agreement, the revolving commitment has been reduced from $30 million to $20 million (with the unused $10 million continuing to be unavailable to Ziff Davis Media under the existing terms).

"The company anticipates that in light of the current recessionary environment it will need to obtain additional funding through either additional investments or further borrowings under its senior credit facility to meet its future working capital and debt service requirements," the statement said.

Ziff Davis CEO Robert Callahan said executives were "focused squarely on the turnaround of this company."

"We are making solid progress on the operating side, and it is now time to begin the process of reducing our debt burden and providing for more efficient capital investment into the company to grow its revenues and profits," Callahan said.

The company also said it would take a higher restructuring charge in the fourth quarter of 2000. The charge, which was previously set at $150 million, has now been upped to $275 million. Ziff Davis will also absorb costs resulting from discontinuing certain businesses, layoffs and the write-down of certain assets.

The company, which has already shut down or merged struggling titles, also painted a bleak picture for 2002. It said EBITDA earnings in the first quarter this year would be between $2 million and $5 million, down 82 percent to 54 percent respectively.

"We continue to have significant decreases in advertising pages in many of our publications and visibility for increases in the near term is limited. We have therefore prepared ourselves for continued difficult business conditions through most of 2002 and we continue to evaluate the company's size and cost structure to reflect this environment." said chief financial officer Bart Catalane.