Case 4 New Media Corporation

In this chapter, the last of four case studies is presented. This case deals with a fast-growing media and telecom company, which sets out on an ambitious plan to build a nationwide fiber optic network to link the urban centers and major suburbs throughout the country. This high-speed broadband platform would be the cornerstone of a robust, integrated media and telecommunications business. Management makes a serious error in the capital budget for this immense project, by failing to arrange sufficient equity capital and long-term debt to ensure that future debt service obligations are well-calibrated with conservatively projected future operating cash flows. When a risk-off episode hits the EM space, the company becomes unable to meet its debt service burden with new debt. In this period, the company commits a second, serious error in contracting high-yield debt from an aggressive, vulture-type fund. The company is forced to address its problems in an undeveloped restructuring environment, which gives the vulture fund an opening to strip valuable assets. Ultimately, despite aggressive and illicit actions on the part of the vulture fund, the company succeeds in closing a series of divestiture transactions that leads to the reestablishment of financial stability and the creation of a smaller, but sustainable business.