M&A

11 November, 2009

UPDATE 1-Cyrus Capital makes offer for ION Media Networks

* Cyrus makes $250 mln offer for 62.5 pct of reorganized co

* Cyrus offers to refinance ION's bankruptcy loan

* Cyrus offers to let company out of litigation

By Emily Chasan

NEW YORK, Nov 11 (Reuters) - A creditor of bankrupt television station owner ION Media Networks Inc (IION.PK) has made a last-minute $250 million offer for control of the broadcast network operator.

In a letter to the company's board of directors dated Nov. 9, Cyrus Capital Partners said it would refinance ION's existing debtor-in-possession bankruptcy loan for $250 million in exchange for 62.5 percent of equity in the reorganized company.

Cyrus, which has been entangled in litigation with the company over its reorganization plan, said in the letter that it was offering the deal as an improvement to the company's existing reorganization plan, and if approved by the court its offer would allow the company to exit bankruptcy protection immediately.

ION, the owner and operator of the ION Television broadcast network, filed for bankruptcy protection in May, just hours before reaching an accord with a majority of its senior first-lien debt holders to convert debt to equity in a pre-negotiated financial restructuring.

Last month the bankruptcy court allowed ION to begin soliciting votes from creditors on its proposed reorganization plan. But ION has also been entangled in litigation with Cyrus, which holds the company's second-lien debt, in a lawsuit ION has claimed in court papers could "hijack" its restructuring efforts.

Cyrus has claimed the company's deal with first-lien lenders is invalid because it is based on an illegal lien on ION's Federal Communications Commission licenses for its 50-some television stations. The licenses represent a majority of the company's value, and Cyrus says a lien the first-lien lenders were granted on the FCC licenses is invalid because the FCC does not permit liens on such licenses.

Cyrus said as part of its offer it would withdraw all litigation around the validity of the liens, eliminate the possibility of prolonged litigation, and provide the exact same treatment to creditors under ION's proposed restructuring plan.

Under ION's current proposed restructuring plan, $2.7 billion in debt and preferred stock would be extinguished, current equity holders would be wiped out entirely, and the $150 million debtor-in-possession financing will be converted into 62.5 percent of the reorganized company's new common stock. That plan is supported by holders of more than 70 percent of its first lien secured debt.

The Cyrus offer would allow the company to repay its DIP loan immediately, keep the reorganized business plan intact and provide $100 million in additional capital to the company, Cyrus said in the letter.

An ION spokesman was not immediately available to comment on the offer.

A court hearing on the company's reorganization plan is set for Thursday.

The case is In re: ION Media Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-13168.

(Reporting by Emily Chasan; Editing by Phil Berlowitz)

Source: http://www.reuters.com