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

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.

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