Apax’s Answers Corp. Said to Seek Forbearance Amid Default Riskby and
Apax Partners-owned Answers Corp., which owns consumer websites Answers.com and Multiply, is seeking leeway from lenders as it prepares to reorganize a debt load of more than $500 million, according to people with knowledge of the matter.
The company sent a letter to second-lien loan holders seeking forbearance, the people said, asking not to be identified as the information isn’t public. Borrowers typically seek a forbearance period to conduct out-of-court negotiations with their largest lenders on a debt restructuring. During that designated time, lenders agree not to push for immediate repayment if a company defaults.
The move comes after the departure of Chief Executive Officer David Karandish last month and as the company announced plans to re-brand itself as Multiply, a website that connects celebrities with fans. Apax, one of Europe’s largest private-equity firms, purchased Answers Corp. in a $900 million deal from Summit Partners and TA Associates in 2014.
Apax pumped in 300 million euros (or about $390 million at the time) as part of the buyout and has subsequently marked down the value of that position, said another person with knowledge of the matter.
A representative for Apax declined to comment.
The online business has about $500 million in outstanding borrowings in first- and second-lien loans, with its junior debt trading at less than 10 cents on the dollar, according to prices compiled by Bloomberg. Its first-lien debt was quoted about 55 cents on the dollar, prices show.
In July, S&P Global Ratings cut the company’s credit rating to CCC, indicating an increasing risk of default over the coming year. “We estimate that the company would default around current Ebitda level due to weak liquidity and continued weakness in the Answers.com business,” S&P wrote in its report, referring to earnings before interest, taxes, depreciation and amortization.
Moody’s Investors Service carried out a similar ratings downgrade, to Caa2, in June. Such a credit rating indicates the company is dependent on favorable business conditions to even be able to meet its financial obligations and may not be able to repay debt, according to ratings definitions.
When Apax bought the business, Moody’s identified the popularity of the Q&A website Answers.com as a mitigating factor to its high leverage. But in the two years since, the platform has grappled with major challenges as fewer people visited the site after search engine Google altered its search algorithms and competition for paid website traffic intensified as Facebook increased its news feed pricing, according to the ratings firms.