SCI Television Avoids Bankruptcy, Restructures Debt
Feb. 06, 1990
NEW YORK (AP) _ SCI Television Inc. has completed a debt exchange offer that will enable the TV station operator to avoid being forced into bankruptcy court proceedings.
The Denver-based company, which had been unable to meet interest payments on its buyout-related debt, has been trying for months to negotiate an exchange under which its bank and bond lenders would get an equity stake in the company.
''I think the bondholders got a fair deal,'' said Wilbur Ross, a senior managing director at Rothschild Inc., which was financial advisor to a group of major SCI bondholders. He spoke Monday as the debt exchange was being completed.
The deal reduces the stake held by controlling investor George Gillett to 41 percent from 55 percent. It also cuts the SCI stake held by a group led by buyout specialist Kohlberg Kravis Roberts & Co., to 15 percent from 45 percent.
A key reason why most bondholders accepted the plan was that Gillett and Kohlberg ''contributed more value to the resolution of the problem than anybody ever has in resuscitating a failed LBO,'' Ross said.
In an effort to reduce its debt to manageable proportions, SCI wanted to get at least 85 percent of $100 million in 16 1/2 percent senior subordinated debentures tendered under terms of an exchange offer.
Those tendering debt would get new debt securities and stock in the company in return for their bonds.
Although it failed to come up with the 85 percent goal by a Monday afternoon deadline, the company said a federal bankruptcy court judge in Delaware ruled that the difference between the target and the 83.9 percent the company actually received was ''not material.''
As a result, the company said the judge dismissed an involuntary bankruptcy petition against SCI that had been filed by a small group of bondholders.
SCI Television was created in 1987 and consists of the six television stations once owned by Storer Communications. Kohlberg Kravis led a leveraged buyout of Storer in 1985 and sold the TV stations to the new company for $1.3 billion.
But SCI has had trouble generating enough cash from station operations to pay the interest on its debt.
It failed to make a $153 million principal payment on its $650 million in bank debt in October, and subsequently missed an interest payment on its $507 million in publicly-held bond debt.
On Oct. 25, SCI announced a restructuring plan under which its bondholders would exchange their securities for more debt and stock in the company.
In mid-November, a group of three SCI Television creditors unhappy with the plan filed a petition in federal bankrupcty court in Delaware to force the company into involuntary bankruptcy.
The petition was filed on behalf of S.N. Phelps & Co. and two individuals who hold about $180,000 in SCI bonds and were owed about $15,000 in interest.
In December, SCI proposed a revised debt restructuring plan under which Gillett's stake would fall to 41 percent and Kohlberg Kravis' stake would drop to 15 percent. Bondholders would get a 39 percent stake in the company and bank lenders would get 5 percent.
In addition to giving up much of its equity in the company, Ross said Kohlberg Kravis cancelled a $160 million note it was owed. Kohlberg Kravis and Gillett chipped in another $20 million each by contributing their interest in a leasing company that owned the antenna and other equipment used by the SCI stations, Ross said.
SCI Television operates stations WSBK in Boston, WJBK in Detroit, WJW in Cleveland, WAGA in Atlanta, KNSD in San Diego and WITI in Milwaukee.