Ziff Davis Media Files for Bankruptcy

Ziff Davis Media is a wholly -owned subsidiary of Ziff Davis Holdings, and has substantial debt that it has no way of servicing. The company has reached an agreement with around 80% of the holders of one class of its senior debt, but has not reached agreement with the holders of its subordinated debt. The company is looking for a court to approve its restructuring plan as part of Chapter 11 bankruptcy proceedings.

Ziff Davis owes $225 million of senior secured debt, and under the plan will give those noteholders $57.5 million in senior secured debt and 88.8% of the reorganized company's common stock. As part of that process, note holders will agree to set aside up to $24.5 million to fund operations during the bankruptcy.

Here's the problem: The company also owes substantial funds to the holders of its subordinated, unsecured notes. Subordinated means that those noteholders only get paid after the senior noteholders. Inevitably, this restructuring plan will mean that the subordinated debt holders will lose a lot of money. As such, holders of the subordinated notes will fight the bankruptcy plan. In spite of that, Ziff Davis "believes the restructuring plan can be approved by the Court without their agreement."

In essence, Ziff Davis Media has placed its fate in the hands of the bankruptcy court. If the court agrees to the plan, Ziff Davis Media should be able to continue operating and will substantially reduce its debt. If the court sides with subordinated debt holders, Ziff Davis Media may yet have serious problems.