Penthouse publisher FriendFinder Networks Inc., which Mergers & Acquisitions placed on our Distressed Company Watch List in August, has filed for bankruptcy protection. 

FriendFinder, which filed as PMGI Holdings Inc., filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Sept. 17 to implement a recapitalization agreement it came to with its note holders.

The debtor and a group of bankrupt affiliates operate a group of entertainment and social networking sites that include online personals, live and recorded video, online chat rooms, instant messaging, photo and video sharing and message boards. The company also publishes Penthouse and other adult-oriented adult entertainment materials. In order to provide those services, the company uses a number of “performers” who have cultivated very loyal audiences, the company says in court papers. The debtors and affiliate have more than 220 million members, according to court papers.

The company has declining financial performance and pending debt maturities.  The company’s revenue for the year ended June 30 was $283.7 million, down from the year before, when the companies brought in $326.5 million. In court documents, FriendFinder says in court papers that the revenue decline is primarily because of decreased website traffic.

FriendFinder defaulted on 14 percent senior secured notes due 2013 and 14 percent cash pay secured notes due 2013. On Sept. 16, the company came to recapitalization agreement with the note holders, it says in court papers. Those notes are primarily owned by Andrew Conru and Lars Mapstead, who sold a group of adult sites to Penthouse in 2007.

The restructuring agreement, which still requires creditor approval, would convert first-lien notes into new first-lien notes. The holders of the second lien notes will receive 100 percent of the common stock of the reorganized company.

The debtor has been trying to restructure or refinance since October 2012, when it hired CRT Capital Group Inc. During that period of time FriendFinder tried to de-lever and sell the company, but a deal was never accomplished. 

Before the attempted deleveraging/sale process, in October 2010, the company restructured and consolidated its debt into three tranches of notes. On May 16, 2011, the FriendFinder issued 5 million shares of its common stock, bringing in $50 million from its initial public offering. The company was traded on the Nasdaq exchange until Aug. 8, 2013, when it began trading on the OTCQB marketplace.

Boca Raton, Fla.-based FriendFinder filed a motion for joint administration with many affiliates that also filed bankruptcy petitions. The full list of bankrupt affiliates includes: PMGI Holdings Inc., Argus Payments Inc., Big Island Technology Group Inc., Blue Hen Group Inc., Confirm ID Inc., Danni Ashe Inc., Fastcupid Inc., Fierce Wombat Games Inc., FriendFinder California Inc., FriendFinder Networks Inc., FriendFinder Ventures Inc., FRNK Technology Group., General Media Art Holding Inc., General Media Communications Inc., General Media Entertainment Inc., Global Alphabet Inc., GMCI Internet Operations Inc., GMI On-Line Ventures Ltd., Interactive Network Inc., Magnolia Blossom Inc., Inc., Naft News Corp., Penthouse Digital Media Productions Inc., Penthouse Images Acquisitions Ltd., PerfectMatch Inc., Playtime Gaming Inc., PPM Technology Group Inc., Pure Entertainment Telecommunications Inc., Sharkfish Inc., Snapshot Productions LLC, Steamray Inc., Streamray Studios Inc., Tan Door Media Inc., Traffic Cat Inc., Transbloom Inc., Various Inc., Video Bliss Inc., West Coast Facilities Inc. Xvhub Group Inc.

The company also filed motions to use cash collateral, pay employees and accept credit card payments. Court documents did not indicate when Judge Christopher Sontchi would preside over a first day hearing.

FriendFinder listed assets between $100,000 and $500,000 and liabilities between $500 million and $1 billion on its petition. The company has about $565.1 million in secured debt. PG&E, owed $25,512, Aviana Global Technologies Inc., owed $8,875, and Marin Software Inc., owed $8,300, are the company’s largest unsecured creditors.

Dannis Meloro, Nancy Mitchell, Mathew Hinker and Paul Martin from Greenberg Traurig LLP are debtor counsel. 

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