Tuesday, April 28, 2009

Source Interlink Owes Publishers Millions

Source Interlink owes more than $200 million to magazine publishers and their affiliated national distributors, the company revealed today in filing for bankruptcy reorganization.

Except for the bank that is acting as trustee for Source's noteholders, the company's four largest unsecured creditors are the Big Four national newsstand distributors -- Time Warner Retail ($75.5 million), Comag ($53.2 million), Curtis Circulation ($42.7 million), and Kable Distribution Services ($22.9).

Other publishers on the list of the top 30 unsecured creditors are Bonnier ($2.4 million), Comag UK ($2.3 million), Harris Publications ($1.8 million), Acorn Media ($1.7 million), American Media ($1.7 million), Future Publishing ($1.6 million), Scientific American ($1.2 million), Playboy Enterprises ($1.0 million), and Meredith ($0.9 million). Also in the top 30 are Quebecor World, which itself is trying to emerge from Chapter 11 ($1.6 million), and Rider Circulation Services ($0.9 million).

Source announced today that it was filing a "prepackaged" Chapter 11 reorganization, meaning that it has worked out a deal with its lenders to restructure its debt and continue operating. Source says its lenders are canceling nearly $1 billion in debt and providing about $100 million in additional financing. Vendors will be paid on time "if they keep our credit limits and payment terms the same," a company statement said.

With the company's stock being canceled (and worthless), the lenders will presumably end up controlling the company. It's not clear whether those lenders include the Big Four or other publishers, some of whom Source sued earlier this year in a nasty legal spat that disrupted newsstand sales of magazines in much of the U.S. More may be revealed at a court hearing on Wednesday.

A Time Inc. attorney said in February that Time Warner Retail was concerned that it would never recover the $120 million in late payments owed by Source Interlink. Source Interlink's trade debt to Time Warner Retail and the other national distributors presumably resulted from its failure to pay for magazines it had sold.

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