Business & Tech

Talking Points AM/Larry Edelman

Who loaned $460m to American Media? Inquiring minds want to know

STEPHANIE KEITH/GETTY IMAGES

Will this turn out to be a case of lenders’ remorse?

Back in January, before Amazon CEO Jeff Bezos went public with allegations of extortion and blackmail against the National Enquirer, the tabloid’s parent company raised $460 million to refinance its debt. American Media Inc. didn’t disclose who loaned it the money, but the New York Post said new investors kicked in along with hedge fund managers Chatham Asset Management, which owns most of the company, and Leon Cooperman, who also holds a stake.

You have to wonder how those investors are feeling now that federal prosecutors are looking into whether AMI violated a non-prosecution agreement the New York company reached concerning its payment of $150,000 to former Playboy model Karen McDougal to keep quiet about her affair with President Trump, a violation of campaign finance rules. If the feds decide that AMI broke the law in its dealing with Bezos, it could be prosecuted in the McDougal case. Let's just say that would not be good for business.

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In case you’ve been completely off the grid, Bezos wrote in a blog post last week that the tabloid threatened to publish salacious photos of him if he didn’t drop an investigation into how the paper got texts for a story in January about his extramarital affair with former television anchor Lauren Sanchez. AMI also demanded that Bezos declare publicly that the Enquirer's coverage wasn’t politically motivated; AMI's chief executive, David Pecker, is a pal of President Trump, who has a long-running beef with The Washington Post, which Bezos owns.

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A lawyer for AMI went on national television Sunday to reject Bezos' accusations. His client, he said, was engaged in legitimate journalism.

“It absolutely is not extortion and not blackmail," attorney Elkan Abramowitz said on ABC’s "This Week." 

 In Abramowitz’s telling, “Bezos didn’t want another story written about him or those pictures published, AMI did not want to have the libel against them that this was inspired by the White House, inspired by Saudi Arabia or inspired by The Washington Post.” Hence, he said, the two were negotiating “to try to resolve their differences.”

On Monday, the Associated Press reported that Bezos’s investigators have determined that Michael Sanchez, Lauren Sanchez’s brother, leaked the text messages to the Enquirer. It cited a person familiar with the matter who insisted on remaining anonymous. Sanchez didn’t immediately respond to a message seeking comment, according to the AP.

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As for the new debt raised by AMI, $235 million was a first-lien loan that matures in 2023, and $225 million came in the form of second-lien bonds paying 10.5 percent interest and due in 2026. The company will use the money to pay off a loan it took to buy celebrity and teen magazines from Bauer Publications, and to refinance its other debt.

Chatham Asset Management, which is named for the New Jersey town where it’s based, took control of AMI in 2014, buying up all its stock as part of a restructuring that also included Cooperman, a New York hedge fund manager. AMI, which had already been through bankruptcy four years earlier, was struggling under the weight of its debt and, like many print publishers, declining circulation and advertising.

“I had a very, very leveraged balance sheet where I was just on the brink myself, four times,” Pecker told the Toronto Star in 2016.

Following the rescue by Chatham founder Anthony Melchiorre, AMI pushed beyond its celebrity titles, which also include the Star and the Globe, into magazines geared toward men’s health and fitness, events, and the Internet.

But the company lost a combined $224 million over the past five fiscal years, Bloomberg reported in August, citing documents it had reviewed. American Media’s net loss narrowed to $72 million in the year ended in March, Bloomberg said.

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Its finances, combined with Pecker’s involvement in the payments to McDougal and Stormy Daniels, the adult firm star who also had an affair with Trump, made raising fresh cash difficult. A spokesman didn’t return an e-mail seeking comment.

But in a statement last month, Pecker said, “Completing this latest refinancing, in one of the most challenging market conditions in recent history, underscores the confidence the investment community has in American Media and our powerful brands.”

We'll see how much confidence investors have now that the world's richest person and the feds have the company in their sights.

You can reach me at larry.edelman@globe.com and follow me on Twitter @GlobeNewsEd. Sign up for my Talking Points AM newsletter here.