FriendFinder Large First-Lien Holders Bid Towards Par in Expectation of Refi

FriendFinder’s 14% first-lien notes due September 2013 have been bid up to the 98 context on the expectation of a refinancing that would refinance the first-lien debt at par and include an equitization of the second-lien debt, according to sources.

A lot of options are still available, including whether or not the company decides to go private, according to sources, but communications are moving forward looking with the aim of coming to a suitable deal for all parties involved well in front of the May 6 deadline of the most recent forbearance agreement.

Last week a large odd lot transacted at about 97 and the bonds were immediately bid higher following the trade, according to sources, as the largest holders are still looking to be buyers of the paper at 96/97.5. That was an indication that first-liens expect to be refinanced out at par, which sources close to the situation say is of high likelihood. The movement was the first since the company announced that forbearance extension through May 6 and skip its excess cash flow payment to “take advantage of what management believes are current favorable market conditions to refinance.”

Even in a hot debt capital markets, a straight refinancing has for months has not been probable for the 2013 notes without some further restructuring, according to sources. The notes traded as low as 71 in August, but have steadily traded up since that time as the company started to work with bondholders on an amendment and refinancing.

The company had been unable to come to an agreement with the holders of second-lien notes, and already had to obtain an extension of a waiver from the second-lien PIK notes from certain covenants. The second-lien notes would be worthless in a bankruptcy scenario, according to sources, so much of the free cash flow has been used to pay down the first-liens. The company founder Andrew Conru, an early internet entrepreneur enriched by the partial sale of FriendFinder, through a trust owned 23.4% of the company as of April 20, according to the company’s most recent disclosures, as well as nearly all of the second-lien notes along with co-founder Lars Mapstead, according to sources. Conru also owns a portion of the first-lien debt and has largely been seen as driving the negotiations, according to sources.

FriendFinder was also notified early February that it again failed to meet Nasdaq’s $1 threshold and $15 million minimum market cap over the required 180 days and was subject to delisting. The company said it would appeal.

The company has $213 million in 14% first-lien notes outstanding as of Sept. 31; $9.6 million in 14% cash pay second lien notes due 2013 and $280.53 million in 11.5% second-lien PIK notes due 2014.

The company retained CRT Capital Group LLC as financial advisor to help explore opportunities to refinance the notes late last year, according to a disclosure in December. Previously Imperial Capital was the investment banker for the company during much of its financing changes, according to sources.

Holders of approximately 94% of the 14% notes and the holders of 100% cash pay notes due 2013 agreed to the forbearance.

The existing capital structure was put in place October 2010, followed by multiple adjustments to the company’s financial arrangements with lenders.

Calls and emails sent to the company and CRT requesting comment were not responded to by press time. - Max Frumes