Bankrupt Key3Media Looks For New Ownership, Restructuring Of $372 Million In Debt

Bankrupt Key3Media Looks For New Ownership, Restructuring Of $372 Million In Debt

Troubled technology trade show company Key3Media, producer of such industry leading events as the COMDEX, NetWorld+Interop and Seybold shows, is negotiating a deal to reduce its outstanding debt by $322 million and keep its operations running while obtaining new ownership.

The recapitalization plan calls for Key3Media, Los Angeles, to reduce its total debt by 87% from approximately $372 million to $50 million and eliminate all of its preferred stock and common equity. Annual interest payments would be cut from $38 million to $3.4 million.

The recapitalization plan is being backed by Thomas Weisel Capital Partners (TWCP), San Francisco, which owns approximately 68% of Key3Media’s bank debt and 38% of its bonds. As part of the deal, TWCP will provide Key3Media with $30 million in financing for a pre-negotiated Chapter 11 bankruptcy filing. A U.S. Bankruptcy Court judge in Delaware approved the use of $12.5 million from the $30 million financing plan on Feb 5. A final decision on the remaining financing is set for March 7.

TWCP also will continue to fund the company after the recapitalization is completed. At that time, TWCP will own 99% of the company, with the remaining creditors and bondholders owning a 1% interest.

Key3Media chairman and chief executive officer Fredric Rosen said Key3Media’s money problems began when the company was spun off from Ziff Davis Inc. in early 2000, shortly before the technology publisher was purchased by Willis Stein & Partners. Rosen said Key3Media was saddled with approximately $405 million in debt when it was spun off. With the healthy economy and strong technology market at the time, he said, it was not considered an exorbitant amount. However, as the economy slumped in 2001 and the technology sector went into a tailspin, the interest payments on the debt became harder to make.

In December 2002, Key3Media announced it was unable to make its semiannual interest payment on its bonds. In January, the company said it was selling its VON Events division back to, from which it originally purchased the show in September 2001. Although the sale price was not disclosed, Key3Media said the deal was done so that it could concentrate on its core trade show properties.

“There are a number of reasons why this happened,” Rosen said. “The industry went into a freefall. Then after Sept. 11, travel declined sharply and attendance at the shows suffered,”. “People always point out that attendance is down and that’s because the industry is down. We are a reflection of the current state of the industry.”

Lawrence Sorrel, a managing partner and director of private equity with TWCP, said Key3Media is still a viable entity in the technology sector.

“With a strong portfolio of brands, Key3Media is a fundamentally sound company that has been hurt by its capital structure and the declines in the IT and networking industries,” Sorrel said.

Rosen added that Key3Media hopes to emerge from bankruptcy within 90 days.

Key3Media can be contacted at 323-954-6260.

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