Cygnus Business Media’s Chapter 11 filing offers a revealing look at the financial situation the company is facing and the performance it anticipates going forward through 2013.
The document also reveals the lone lender holdout that forced the company’s restructuring proceedings to go through bankruptcy court: Genesis CLO 2007-2 Ltd., an investment fund managed by Levine Leichtman that holds approximately $6.4 million of the approximately $173 million in First Lien Facility Claims. According to the filing, negotiations for an out of-court-restructuring were on pace until July 14, when Leichtman refused to consent, even though the other creditors did. Unanimous consent was required to keep the restructuring out of court.
The bankruptcy protects the major investors and creditors, with one description putting it this way: Everyone is protected except for the 1st/2nd lien, preferred and equity. All unsecured creditors (AP vendors) will receive 100 percent recovery. The only item being excluded is a large lease, where the property owner will receive a settlement.

However, individual stockholders, including a host of operating executives such as former CEO Paul Mackler, former president Richard Reiff and former CFOs Carl Fazio and Ken Fisher, among perhaps two dozen others, will have their equity shares cancelled. 

Bottom Line Plummets

Meanwhile, the company’s financial performance is in a scary decline according to documents included in the bankruptcy filing.

Cygnus expects total revenue to fall by $35 million from $107 million
in 2008 to $71.4 million in 2009. Print is forecast to drop 33 percent
to $45.5 million, while interactive revenue will drop 14 percent to
$8.6 million and events will fall 19.5 percent to $15.1 million.
EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization
and Rent) is forecast to drop 70.1 percent to $6.7 million in 2009,
down from $22.9 million in 2008. In 2010, the company expects EBITDAR
of $12.2 million.
The company is experiencing a massive drop in its bottom line performance, with free cash flow dropping from $24.9 million in 2007 to $14.5 million in 2008 to a projected negative $2.6 million in 2009.

By 2010, Cygnus predicts free cash flow to be up to $8.7 million and reach $12.9 million in 2013.
By 2013, Cygnus forecasts revenue will be $75.5 million, with print accounting for 49.6 percent of total revenue or $37.4 million. Events will account for 26 percent (compared to 15.4 percent of revenue in 2009), while interactive is forecast at $18.4 million or 24.4 percent of total revenue (up from 12.5 percent in 2009).  
Failed Sales Attempts Forced Restructuring

The Cygnus filing comes almost the same week that Carr Davis and Tony O’Brien took over as co-CEOs of Cygnus three years ago (they departed in December 2008, replaced by Charlie Carnaval, an executive with Zolfo Cooper, a firm that specializes in corporate restructuring).

According to the filing, Cygnus was up for sale more than three years ago but failed to get a bid that satisfied the board of directors. A second sales effort "concluded with the leading party providing a bid that failed to satisfy the amounts owed to the First Lien lenders and the Second Lien lenders and would not provide a recovery for other constituents." Last August, several sources said a verbal agreement was in place with Wasserstein Partners, with estimates of a sales price between $200 million to $240 million or about 8x estimated EBITDA. 

In April, senior lender GE Commercial Finance was said to be working on a debt-for-equity-exchange with other lenders that would transfer formal equity control from ABRY Partners.
Cygnus says it expects to emerge from Chapter 11 within 45 days with a reduction in its secured debt from $180 million to $60 million.