UPDATED: Creditor Files to Liquidate Equity Media, Claims Company Cannot Meet Payroll Obligations

by Mark Hengel  on Wednesday, Dec. 10, 2008 12:29 pm  

Equity Media Holdings Corp. of Little Rock faces the possibility of liquidation after its creditors filed to change the company's petition for voluntary Chapter 11 bankruptcy to involuntary Chapter 7 or dismiss Equity's bankruptcy case entirely. The bankruptcy filing only covers the holding corporation and does not protect the 48 properties listed in the original suit.

A hearing is scheduled for 9 a.m. Tuesday in U.S. Bankruptcy Court for the Eastern District of Arkansas.

A liquidation would take six months in the least, but would likely take between 12 and 18 months, said media broker W. Lawrence Patrick, of Patrick Communications LLC in Elkridge, Md. Patrick has worked with Equity and its creditors to broker previous deals involving Equity's properties. Employees would retain their jobs through a liquidation, Patrick said.

A complaint filed Dec. 2 against Equity alleges the company's management and members of the company's board of directors repeatedly acted in their own self-interest rather than in the interest of creditors.

Silver Point Finance LLC of Greenwich, Conn., filed the foreclosure suit and conversion motion, seeking to recoup about $41.5 million the private equity firm loaned to the broadcaster. On Dec. 8, Equity filed for Chapter 11 reorganization, which will delay and possibly pre-empt the liquidation Silver Point is seeking. Silver Point's latest filing alleges Equity's management cannot reorganize successfully under Chapter 11 and does not have cash sufficient to cover its payroll obligations. It's unknown how many employees Equity has.

"Indeed, as of the time of this motion's filing (Tuesday), the Debtor and its subsidiaries must fund payroll tomorrow (Wednesday) and the Senior Lenders are informed the that [Equity Media] and its subsidiaries do not have cash sufficient to make payroll," according to court documents. Equity CEO John Oxendine has not returned several calls seeking comment. Several other Equity officials have also failed to return calls. The company must pay its check processor Wednesday. If Equity does not, the company must overnight checks to employees or not pay them at all. In a court filing, Equity's payroll was estimated about $300,000.

In an amendment to the conversion motion filed by Silver Point, James Hearnsberger, Equity's then vice president for finance administration, said the company is "currently experiencing cash shortages.... [and is] having difficulty meeting daily expenses necessary to run the business."

Equity Media repeatedly defaulted on the credit agreement it signed with Silver Point Feb. 13, according to court documents. The two parties amended the credit facility three times before relations apparently broke down in November. Despite the defaults, Silver Point provided three additional loan extensions worth a total of $7 million, according to court documents. Equity has had had a history of losses since 2001, the court case alleges. The company lost about $133 million between 2001 and Sept. 30, according to Securities & Exchange Commission filings.

Among several claims, Silver Point alleges that Equity Media and its management presented three separate business plans during 2008 but failed to implement any of them. The company's management team has also changed drastically since the beginning of the year, with three CEOs appointed as well as a chief restructuring officer, Paul Brissette, whom the company fired only 20 days after his hiring, according to court documents. Silver Point also alleges that Equity Media's management impaired the company's value by:

● Placing the personal interest of certain board member above obligations to creditors and engaging in self-serving transactions;

● Threatening to cease operations rather than sell assets to repay existing debts;

● Refusing to sell assets at prices agreed upon in the lending agreement;



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