Digital media company BuzzFeed Inc., which owns BuzzFeed, HuffPost and the Tasty and First We Feast properties, is facing a potential $124 million debt crisis linked to funds it raised in June 2021 to finance its acquisition of Complex Media.
According to the contract governing the transaction, the creditors who lent the money to BuzzFeed more than three years ago have the right to demand the editor to repurchase the debt, plus interest, from Tuesday, December 3.
BuzzFeed used part of the cash generated by its sale of Complexe in February to repay the loan, but it still owes $123.5 million, or $118.8 million in principal and $4.7 million in accrued interest, according to public records.
If these creditors demanded that BuzzFeed repurchase the loans in full, BuzzFeed would not be able to do so, which could force the publisher to take drastic measures to raise the funds, or even potentially declare bankruptcy.
“We currently do not have sufficient liquidity or anticipated cash flow to fund the repayment of the notes,” the company said in its third-quarter earnings report.
BuzzFeed declined to comment on the matter. For the moment, no creditor has filed a redemption request. According to a contract update made on October 28, BuzzFeed will have five days to repay a creditor once it submits its “notice of sale.”
But what’s most surprising is the lack of communication from the company, according to Robert Berstein, managing director of consulting firm JEGI Clarity. As this crucial date approaches and has now arrived, BuzzFeed has yet to give any guidance to the market on how it plans to handle the situation.
“Not having an answer to this problem is somewhat concerning,” Berstein said. “For them to kick like that is atypical.”
Consider the options
Even though the situation is serious, BuzzFeed has several options.
The publisher raised money in February by selling Complex for $108 million, and it may sell other assets to generate more cash.
Additionally, the company initiated the sale of its First We Feast food property, which hosts the Hot Ones interview series, for $70 million, according to Bloomberg.
Regardless of the price, if BuzzFeed sold First We Feast, it would have to use the proceeds to pay down the debt. An update to BuzzFeed’s contract with its creditors in February stipulated that 95% of funds generated from future asset sales were to be used to repay debt.
If BuzzFeed manages to sell one of its properties, the windfall would likely encourage creditors to continue working with the publisher to pay off remaining debt, according to Berstein.
In fact, BuzzFeed’s creditors have little incentive to force the company into bankruptcy, as doing so would jeopardize their ability to recoup their investment. This brings us to the second option: restructure the debt or find alternative financing.
BuzzFeed could refinance its debts to creditors by extending the deadline, agreeing to new terms, raising more money or exploring other options, according to Berstein.
Christmas present
Finding new financial partners interested in investing in BuzzFeed could prove difficult given its difficult financial situation, but the company has reason to be optimistic.
BuzzFeed’s stock, which fell from its initial 2021 offering of $10 per share to less than $1, has rebounded to a yearly high of around $4.50. This increase could be the result of various factors.
In May, entrepreneur and politician Vivek Ramaswamy took a 7% stake in the company, which could engender confidence in the company.
The rise could also be linked to BuzzFeed tying its new identity to its use of artificial intelligence, a hot technology that has attracted billions in investment in recent years. BuzzFeed also reported a small quarterly profit in the third quarter, with revenue up 53% year-over-year. Although nascent, the positive financial news is a welcome boost for the struggling publisher.
Whatever the explanation, BuzzFeed’s rising stock could give the publisher some negotiating leverage in conversations about debt restructuring.
Likewise, the economic outlook…especially when it comes to mergers and acquisitions– is moving in a positive direction for a variety of reasons, giving BuzzFeed a healthier chance to navigate its way to solvency.
“BuzzFeed is definitely moving into the top position in the market over the last 24 to 30 months,” Berstein said. “They may feel slightly emboldened because of that.”
