Maxim, Blender Publisher Toast In Another Blow To Quadrangle

The publisher of sex magazine Maxim and Blender has violated debt covenants and may be turned over to creditors, the WSJ reports. Such a move will likely lead to a steep loss for Steve Rattner's Quadrangle Group, which bought the company, Alpha Media, for $250 million last year:

The negotiations are fluid and could still fall apart, according to people familiar with the discussions. Financial results at Alpha Media, the publisher of Maxim and a separate music magazine called Blender, have dropped sharply amid an advertising slowdown...

Maxim's crisis marks the latest setback for Mr. Rattner, a prominent Wall Street deal maker and investor whose firm manages New York City Mayor Michael Bloomberg's multibillion-dollar fortune. Mr. Rattner's Quadrangle Capital Partners has struggled with its private-equity portfolio and recently unwound its hedge fund amid market turmoil.

Quadrangle's private-equity fund paid about $250 million for Alpha Media in August 2007, lauding the company as an "unrivaled" play for reaching 18- to 34-year-old males. The New York-based firm put up about $90 million of equity and borrowed the rest to purchase the titles from British publisher Felix Dennis.

Who are these mysterious creditors who are likely to inherit the titles? One is Cerberus, which used to be thought of as an astute private equity firm. Cerberus execs will not likely have much time to read all the free magazines they'll get, however, because they're too busy trying to save some of the billions they blew on Chrysler and GMAC.

One small bit of good news is that Blender and Maxim aren't actually losing money yet. They'll probably get there soon:

The company's earnings before interest, taxes, depreciation and amortization, or Ebitda, have plummeted, say people familiar with the matter. When Quadrangle acquired Alpha, it was generating about $28 million in Ebitda; it is on track to generate about $8 million in Ebitda in 2008.

Amid a broad magazine downturn, ad pages in Blender are down 25% through September, according to the Publisher's Information Bureau. Maxim's ad pages have fallen 3% over that period.

See Also: Quadrangle's Hedge Fund Blows Up, Closes