Source Interlink Companies

Background

Source Interlink, a publisher and distributor of DVDs, CDs, magazines and books, was founded in 1995 and became a public company in 1997. In August 2007, the company financed a $1.2 billion cash purchase of its publishing business, consisting of more than 70 magazine titles and 90 websites, by adding $1.3 billion in debt to its previously unlevered balance sheet.

Due largely to a decline in advertising revenue as well as a decline in CD sales, fiscal 2009 EBITDA of $170 million was $39 million below plan. Projected fiscal 2010 leverage reached 10.4x 2010 plan EBITDA of $140 million and, during early 2009, Source Interlink began to experience short term liquidity issues.

The Project

Zolfo Cooper was appointed financial advisor to the lender group in March 2009.

Key areas of focus:

  • Assessed the company’s short term liquidity position and the size of its short term funding need.
  • Analyzed the business plan and determined the amount of leverage that the business could reasonably expect to service.
  • Led communications among the various members of the bank group, including ABL lenders, term lenders and senior note holders, regarding liquidity position, additional funding and new capital structure.
  • Assisted the lender group/new equity shareholders in setting new credit agreement financial covenants.

Outcome

A new capital structure was negotiated and implemented via a pre-packaged Chapter 11 plan that was filed April 27, 2009. The plan was confirmed on May 28, 2009 and the company exited bankruptcy on June 19, 2009.