Fuse Media Inc.'s bankruptcy stands to impact some of the biggest names in the media and communications sector.
The programmer — which targets young multicultural audiences and is famously backed by singer/actress Jennifer Lopez — recently filed for prepackaged Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware. As part of that filing, Fuse provided a list of creditors with the largest unsecured claims from the company. Topping the list were units of several media and communications giants, including CBS Corp., Walt Disney Co. and Comcast Corp.
According to the filing, CBS Corp.'s Showtime (US) holds a $600,000 unsecured claim with Fuse for acquired programming. Similarly, Walt Disney's Buena Vista Television holds a $402,266 unsecured claim, also for acquired programming. Two separate Comcast units — Universal City Studios and the advanced advertising business Comcast Spotlight — also hold unsecured claims.
Showtime declined to comment on the matter, while representatives from Disney and Comcast did not immediately respond to inquiries. Fuse also declined to comment beyond its filings.
According to information from the American Bankruptcy Institute, the U.S. bankruptcy code has established a "priority scheme" for creditors' claims, whereby creditors whose claims are secured by assets of the estate are in a superior position as compared to unsecured creditors. But even among the latter group, there is a hierarchy where costs of administration — including professional fees and expenses — have priority over more general unsecured claims.
"Broadly speaking, general unsecured creditors are those creditors that have no priority and have no collateral supporting the repayment of their claims," Myles MacDonald, an associate in the bankruptcy and corporate restructuring department of law firm Cole Schotz, said in an interview.
But Douglas Baird, a professor of bankruptcy law at the University of Chicago, noted that companies have some flexibility in determining how creditors are paid.
"Some claims are entitled to priority but the trickier thing … is that there is discretionary power that the debtor will have to pay off critical vendors," Baird said in an interview.
As providers of programming and music rights, some of Fuse's largest unsecured creditors likely have contracts and will still be paid, according to Baird.
"They are planning [on] wiping out all of the unsecured creditors, but they are planning [on] paying critical vendors and assuming some of their executory contracts so exactly whose ox is going to be gored is just not clear," he said.
Fuse has said its prepacked plan would reduce the company's secured debt by about $200 million while also significantly cutting its attendant interest expense. Although the company intends to assume many of its ordinary contractual obligations, Fuse Media interim CEO Miguel Roggero said in a court filing that "certain contracts and/or leases may be rejected in order to allow the company to emerge from bankruptcy with a stronger financial foundation."
As of April 22, the outstanding principal balance of Fuse's senior secured notes was $242 million, plus accrued interest, fees and expenses. Additionally, the company estimated it owes various vendors, suppliers and other unsecured trade creditors approximately $10 million to $25 million.
Baird expects Fuse's major unsecured partners to be paid.
"This has the smell of something that is a recapitalization … and typically what you want to do in a case like this is you want to keep the people who do business on the ground happy and you do that by paying them," he said.
MacDonald agreed, noting that many prepackaged plans involve restructurings of the senior secured debt, often where the creditor exchanges its debt for equity in the reorganized entity. "In those cases, it is often 'business as usual' for the unsecured creditors who pass through the bankruptcy unaffected," MacDonald said.
Fuse Media's platforms include the linear and video-on-demand channels FUSE (US) and FM (US). Earlier this year, FUSE lost more than 20% of its subscriber base after it failed to reach carriage extensions with Comcast and Verizon Communications Inc.'s Fios TV. The channel has also been locked in a legal battle with AT&T Inc.'s DIRECTV since February, with the satellite provider claiming breach of contract.