It has been a wild ride for Benedek Broadcasting. First, just as the economy shows signs of reviving, Benedek's parent company filed for bankruptcy protection after protracted negotiations with bondholders failed to come up with a plan to pay overdue interest payments on more than $154 million in bonds.
And then, last week, word surfaced that the company was close to a deal to sell out to another mid-size broadcaster—believed to be Gray Communications Systems—for a price estimated to be around $500 million.
At press time last Thursday, a deal had not been signed. Although it was expected to close by week's end, sources warned that there was always the possibility of a last-minute collapse in negotiations.
If the deal does go through, it would combine Benedek's 23 medium- and small-market affiliates covering 3% to 4% of U.S. homes with Gray's 13 NBC and CBS affiliates covering roughly 2.5% of the country. (Benedek's largest station is KAKE-TV Wichita, Kan., the nation's No. 65 market.)
Gray Chief Financial Officer Jim Ryan refused to comment, citing company policy. Benedek President Jim Yager couldn't be reached for comment on the sale talks (although, earlier, he discussed the bankruptcy). Neither could Merrill Lynch, the Wall Street firm advising Benedek about possible strategies. The broadcaster's attorney, Paul Goodman, would say only, "We are looking at all of our strategic alternatives."
Although there are some signs that an economic recovery may not be far away, it has not come quickly enough for Stations Holding Inc.—the parent company for Benedek Broadcasting—which filed for protection under Chapter 11 of the U.S. Bankruptcy Code on March 22.
Like most broadcasters, Benedek struggled for much of 2001, with dramatically reduced revenues and profits. According to SEC filings, through the first three quarters of last year, revenue was down about 8%, to $102.6 million, and operating income plunged more than 90%, from roughly $79 million to $5 million, although a good chunk of the previous-year profits had been due to the sale of stations, according to Yager.
Yager stressed that the Chapter 11 filing does not affect the day-to-day operations of the station group. In fact, some stations assured employees that their jobs were safe. "It's business as usual," Yager said last week. "The operating company is not in Chapter 11 so it's not like we need a judge to approve every time we pay a bill."
The filing was triggered by the parent company's failure to pay interest on more than $154 million in bonds issued in 1996. The interest payment was due last November, but, with ad sales so bad, the company couldn't generate the revenue to pay it. Since then, it has been negotiating with bondholders, according to Goodman, an attorney with New York firm Shack, Siegel, Katz, Flaherty and Goodman.
The filing comes just as Benedek sees signs of a recovery. It expects to show a first-quarter cash-flow gain of about 25%, Goodman says.
But, like most broadcasters, Benedek has been under financial pressure for the past 18 months. By mid 2001, declining revenues and profits put the company in technical default on its credit facility.
Benedek is owned principally by Richard Benedek, who is based in New York. Yager oversees daily operations from suburban Chicago. If the sale does go through as expected, sources say, Yager and other top operating managers are expected to stay with the company, at least for the near term. Sources suggest that Benedek would move on after completion of the sale. He did not return a call seeking comment.
Goodman said that Benedek's reorganization process under Chapter 11 could take four to six months and that he believes "all the creditors will get all the money they are owed." Others said that, if the deal with Gray goes through, the reorganization would be expedited.