An interesting article on FriendFinder and their debt.
 

http://www.bloomberg.com/news/2012-0...e-finance.html

Full Text:

"FriendFinder in Deadline as Sex Doesn?t Sell: Corporate Finance
2012-08-30 19:09:41.848 GMT


(For more credit market news, click on TOP CM.)

By Zeke Faux
Aug. 30 (Bloomberg) -- FriendFinder Networks Inc., the
owner of Penthouse magazine and a sex-dating website that has
$511 million of debt, was given three months by its bondholders
to turn around a business that has never reported a profit.
FriendFinder?s $280.5 million of second-lien notes due 2014
plunged 28 percent this month to 12.5 cents on the dollar, the
second lowest among the 2,063 bonds in the Bank of America
Merrill Lynch U.S. High Yield Master II Index. Bondholders have
given the company until Nov. 14 to raise its cash balance, Chief
Financial Officer Ezra Shashoua said on an Aug. 14 conference
call with investors.
?They?re probably going to have to go back to lenders and
see if lenders are willing to change the terms of the debt,?
said Standard & Poor?s analyst Daniel Haines in a telephone
interview. He downgraded the Boca Raton, Florida-based company
to CCC on Aug. 22 in a report, saying it ?could prove
difficult? to refinance the debt.
Anthony Previte, who took over as chief executive officer
in July, is trying to cut costs and sell more subscriptions to
people looking to meet for sex after the former chief Marc
Bell?s push into online coupons failed. With just $12.8 million
of cash as of June 30 and no profit since at least 2006, the
company is struggling to generate enough money to pay off its
obligations when they come due and to bring earnings in line
with terms laid out in its debt agreement.

In Compliance

FriendFinder was either in compliance or had waivers for
all of its debt covenants as of June 30, Shashoua said today in
a telephone interview.
The second-lien noteholders agreed this month to delay
until November a rule that the company hold $10 million of cash,
which FriendFinder had violated earlier, according to an Aug. 14
regulatory filing. Holders of those securities can?t demand to
be paid before other investors.
?You have different options to get your cash reserves
above $10 million,? Shashoua said.
FriendFinder?s $213 million of first-lien notes due
September 2013 dropped to 71.5 cents on the dollar on Aug. 1,
from as high as 89 cents in March, according to Trace, the bond-
price reporting system of the Financial Industry Regulatory
Authority. The securities jumped to 78.5 cents at 11 a.m. today.
Since FriendFinder raised $50 million in its initial public
offering in May 2011, its stock has plunged 93 percent to 68
cents at 2:55 p.m. today in New York.

Shut Out

Marsico Holdings LLC?s $603 million of 10.625 percent
subordinated bonds due January 2020 are the only securities that
trade cheaper than the FriendFinder second-lien notes in the
Bank of America Merrill Lynch?s high-yield index.
?Generally, when a company?s existing bonds trade at a
very low price, normally they?re shut out of the capital markets
and have to restructure,? said Jeff Peskind, founder of Phoenix
Investment Adviser LLC in New York, which manages $500 million,
including distressed debt. Peskind said he doesn?t follow
FriendFinder.
?There?s nothing going on at this point,? Bell, who?s now
co-chairman of the board and chief strategy officer, said in a
telephone interview. The bonds ?don?t come due soon,? he said.
Previte said on the Aug. 14 conference call with analysts
to discuss earnings that he?s working with bondholders on a
refinancing that ?makes sense to everyone.?

Earnings Requirement

Bondholders agreed in March to modify the terms of the
first- and second-lien debt to require $80 million of earnings
before interest, taxes, depreciation and amortization, or
Ebitda, in the year ending June 30, 2013.
FriendFinder?s Ebitda fell 19 percent to $88.3 million in
2011, Bloomberg data show, and is currently at $70 million for
the last 12 months. Its ratio of debt to Ebitda, adjusted for
leases, was ?very high? at 7.4 times as of June 30, according
to S&P.
FriendFinder?s CCC rating means it?s ?currently
vulnerable? to nonpayment, according to S&P.
Andrew Conru, one of the founders of AdultFriendFinder.com,
is the company?s biggest creditor, with about $243 million of
bonds, according to a Dec. 16 filing. Asked whether he would
consider converting some of his second-lien notes to equity to
lessen the company?s debt burden, Conru said he is ?currently
investigating all options.?
?Everything depends on the terms,? he said in an e-mail.

Hedge Funds

Hedge funds Del Mar Master Fund Ltd., Rockview Short Alpha
Fund Ltd., Stonehill Master Fund Ltd., Visium Credit Master Fund
Ltd., Hayman Capital Master Fund LP and Zell Credit
Opportunities Master Fund LP also hold bonds, the Dec. 16 filing
shows.
AdultFriendFinder.com, which helps people meet for sex,
accounts for about 65 percent of the company?s revenue, S&P?s
Haines wrote in the Aug. 22 report. The firm lost $31.1 million
last year and reported interest expense of $86 million,
eclipsing its $64.7 million of operating income.
?It?s sort of like a Facebook but for people who are
trying to find adult partners,? Haines said. ?They also have
live video chat. You would be paying the performer by the minute
and then they?d be doing whatever they do.?
One of Bell?s failed ventures was a transaction in
September 2011 to buy an international daily-deals business
called JigoCity. FriendFinder lost about $11.5 million on
JigoCity this year, then sold the firm back to its previous
owner for $1 on August 1, according to the Aug. 14 regulatory
filing.

Bell Purchase

?We were trying to find things that meshed within our
business,? Bell said. ?We have a very big global reach.?
FriendFinder?s corporate structure was created in 2007,
when Bell and Daniel Staton struck a deal with Conru to buy his
company for $401 million, according to the filing. Conru took
the bulk of the price in bonds, the filing shows.
The buyer was a firm Bell and Staton had formed four years
earlier to purchase Penthouse out of bankruptcy. Staton owns
20.5 percent of FriendFinder, while Bell holds 16.5 percent,
Bloomberg data show.
On March 29, two days after bondholders agreed to loosen
terms, FriendFinder said in a statement that Bell, who co-chairs
the board of directors with Staton, would be replaced by Previte
as CEO. Bell said the change wasn?t related to the debt
amendment.
?I was contemplating a run for Congress,? said Bell, who
told the Palm Beach Post about his plans in a March 8 article.
?After talking with my family, I decided it was not the right
time.?

For Related News and Information:
Peer comparison: FFN US <Equity> PPC <GO>
Relative value: FFN US <Equity> RV <GO>
Corporate finance columns: NI CF <GO>

--Editors: Richard Bravo, Shannon D. Harrington

To contact the reporter on this story:
Zeke Faux in New York at +1-212-617-2267 or
[email protected]

To contact the editor responsible for this story:
Shannon D. Harrington at +1-212-617-8558 or
[email protected]"

AFF is the biggest dating site on the internet. How can they be $500 mil in the hole?

they stopped paying their affiliates fairly and spent money on stupid shit

Because they are a house of cards and the wind is starting to blow.

How many fake profiles do they have?

I don't think I promote them but they sent me money yesterday haha - must still be a banner somewhere.

Surely can't be any more than other dating programs.

They pay affiliates on time.

They spend more than they earn. :thumbsup

I remember when everyone was holding AFF up as a prime example of how marvellous online porn was. :1orglaugh :1orglaugh

Let this be a lesson to all.

its the debt they took on, not the viability of its online dating programs that's the problem.

Even long before it was sold I never understood why they had so many random sites that may have had potential - ethnic dating, religious dating, free email - but they didn't really develop or give any incentive to promote.

The worst example was slim.com, a superb domain with phenomenal potential, given the diet industry is worth about $40 billion a year in the US alone, just utterly wasted.

As for the criticism of not paying affiliates (or fairly): complete bullshit.

*facepalm*

Big PPS promos and island get-a-ways for top affiliates.

Now they're hurtin.

Yet here they are wasting money flying affiliates around on a private jet.

They're trying to cut expenses anyway possible, that's why they just axed a huge portion of their white labels that weren't generating much income. This was a brilliant move:

"One of Bell’s failed ventures was a transaction in
September 2011 to buy an international daily-deals business
called JigoCity. FriendFinder lost about $11.5 million on
JigoCity this year, then sold the firm back to its previous
owner for $1 on August 1, according to the Aug. 14 regulatory
filing."

Your mileage may vary, but my experience was that I sent dozens of joins to Penthouse and never made dollar number one and they would regularly come up with reasons to delay paying me on my teeny AFF earnings -- all the while spamming like every site I own with disingenuous pitches from people with no authority to even log into my affiliate account, much less make a deal.

I eventually got tired of the Groundhog Day repetition of their nonsense and told them to keep the pittance they owe me and had Webair do a global search on my server for all their links so I could pull them.

Maybe my pittance multiplied by every other webmaster they "lost" the info on or forgot what country they were in etc. helped their cash reserves for what their bond holders want, but that seems like a very very very short term solution to me.

Agreed, do they still own slim.com, looks like its now a weight loss site.

Sex sells. It's just hard to make money at it. :1orglaugh

The same way the US being the worlds largest economy can be 16 trillion in the hole. That is 50k for every man, woman and child in the US.

Rampant waste and spending more than you take in doesn't work no matter how big you are.

Relax, bond holders, your funds are in motion.

As for share holders - you're likely already flushed. Maybe they'll do a reverse-split to make the tiny stock price look bigger; to stay listed.

Doesn't seem to be listed any more as a program (IIRC it used to be), but it has Various Inc in the footer of the site. The site itself looks like some half-assed amateur crap anyone could throw up, with tumbleweed in the "community" area. It's not even in the top million at Alexa. A real waste.

Yeah, site looks horrible, a real waste. I was going to compare the waste to the gfyer who owns body.com and put a tube site on it, then an adult dating site. Now when I go there I see its some basic flash site with very limited info and seemingly no monetization. Maybe the guy sold the domain finally.

body.com is a superb name, with a lot of potential. Slimming, keep fit/exercise, body building, fashion/beauty/cosmetics, health/wellness. If porn-related (a waste, IMO), an 'art' porn site might fit the name best. Tube/dating seems like a lack of imagination, and not even that relevant to the word 'body', but maybe just thrown up while waiting for it to sell.

As it stands now, it's unusable DUE TO THE ALL CAPS and irritating background; may as well be just another cookie-cutter search page.

If that's not criminal I don't know what is.

AFF looks like some country owned company where top politicians are using it to milk cash for them, i really dont see them in different light

Good analogy. I am surprised Conru puts up with it. Maybe he is content with hefty interest on his quarter billion of their debt.

Problem is many public companies are run for the top dogs- upper management , Board of Directors, etc. Shareholders get fucked, vendors get fucked, employees fucked, etc.

Would be interesting to see what would happen if the bondholders all refused to restructure debt terms. You would think vulture investors could come in buy enough debt and take over- it seems like that is what Bell did with Penthouse originally (which would be ironic)

Damn that sucks monkey balls to see 11.5M burn. With their traffic they could do some magic if they would be open for innovation but they are only leaning back to what once made them big. Biggest mistake ever imho

Traffic is only one part of making money online.

If you are sending them traffic or selling ads on credit. Be warned.

You sure? Didn't they use Zango which DID rip off affiliates by stealing their traffic?

It says they lost $11.5M on that site "this year," so if the buy price was higher then the net loss once it was sold back for $1 was higher too.

It's about will you still GET paid.

ouch - "Andrew Conru, one of the founders of AdultFriendFinder.com, is the company’s biggest creditor, with about $243 million of bonds, according to a Dec. 16 filing. Asked whether he would consider converting some of his second-lien notes to equity to lessen the company’s debt burden, Conru said he is “currently investigating all options.” "

Technically AFF makes $, as in their EBITDA is still positive. However when you take into account their debt agreements and interest, they lose money. The interest is drowning them.

Debtholders are getting concerned that their cash reserves are getting low, and EBITDA is shrinking (I believe the article said it dipped below $80M), and now they question whether the interest payments can continue to be made.

Significant debt is coming due in the next year or so, and the company is not in a position to re-finance that debt. Lastly, they have gone public, and the shares have slid, so I am unsure of the realities of if the debtholders would want to exchange their debt for shares of the company.

It will be interesting to see what the bondholders do, primarily Conru, who was the original owner, and a large holder of bonds. This is my take, for what it's worth. On some level they both may need to work together or they both can lose. Then there's also the possibility they prefer to trigger a creditor event and unsure what that would mean. Still trying to get my head around it. Curious what others think.

He was never the sharpest knife in the drawer.