Source Interlink Files for Chapter 11

(Reuters) – Magazine wholesaler and publisher Source Interlink Companies Inc (SORC.O) filed for Chapter 11 bankruptcy protection late on Monday, under a pre-packaged plan it said would wipe out nearly $1 billion of debt and allow it to re-emerge as a privately held company.

In a statement on Tuesday, Bonita Springs, Fla-based Source Interlink also said its lenders would provide an additional $100 million in liquidity and that it expects to be able to emerge from bankruptcy within 35 days, while continuing to operate as it has.

Under its agreement with lenders, Source Interlink will also pay all of its vendors in full and on time if they keep current credit and payment terms, the company said.

“Current management will remain in place,” Chief Executive Greg Mays said in the statement.

“Importantly, all our vendors will be paid in full for both pre-petition and on-going charges according to our terms of trade,” Mays said.

Source Interlink, which is controlled by billionaire Ron Burkle, produces and distributes magazines, DVDs, music CDs, books and other related items, to over 110,000 retail locations throughout North America, according to court documents filed on Monday in U.S. Bankruptcy Court in Delaware.

In a pre-packaged bankruptcy filing, a company negotiates a restructuring plan outside of Chapter 11 and allows its creditors to vote on the plan prior to the bankruptcy filing, which accelerates the process in court.

The company listed total debts of nearly $2 billion as of April 24, according to its filing.

Its largest creditor is HSBC Bank USA National Association (HSBA.L), which holds $455 million in notes, according to the filing.

Source Interlink’s largest equity holders include AEC Associates LLC, with 48 percent of shares, Scopia Management Inc with 9 percent, and Goldman Sachs Group (GS.N) with 7.2 percent.

The case is In re: Source Interlink Co Inc, U.S. Bankruptcy Court, District of Delaware No 09-11424. (Reporting by Santosh Nadgir in Bangalore, additional reporting by Phil Wahba in New York; editing by Carol Bishopric)