Key3Media Files for Bankruptcy Protection

Key3Media Group Inc. of Los Angeles, unable to cope with a $370-million debt hangover from acquiring prominent technology trade shows, announced Monday that it would file for bankruptcy protection.

The company struck a deal with its leading creditor, Thomas Weisel Capital Partners, to bring a reorganized Key3 out of bankruptcy protection quickly with only $50 million in debt. The deal calls for Weisel, which holds about 68% of Key3’s bank debt and 38% of its bonds, to own about 99% of the reorganized company, with unsecured creditors and other bondholders initially owning the remaining 1%.

The plan, which also calls for Weisel to provide $30 million to keep the company running during the reorganization, awaits review by a federal Bankruptcy Court.

The process would leave Key3 as a privately held company, wiping out what little value is left in the company’s stock. After climbing as high as $13, the stock closed Monday at 0.5 cents, down 60% in over-the-counter trading.

Key3’s signature events include the annual Comdex technology trade show in Las Vegas, which has seen its attendance drop more than 40% since its peak in 2000, according to Tradeshow Week magazine.

Executives and analysts blamed Key3’s troubles mainly on forces beyond the company’s control, particularly the foundering high-tech economy.

But in its efforts to grow, the company spent $120 million to add technology trade shows to its portfolio, increasing its dependence on the sinking high-tech industry and deepening its debt.

Key3 said Monday that the bankruptcy reorganization would not affect its trade show lineup, which the company trimmed last year in an effort to cut costs. Nor would it force any more layoffs at the company, whose staff of 375 is about half of its peak size.

Chairman and Chief Executive Fredric Rosen, who built Ticketmaster into an advance-ticketing powerhouse, is expected to lead Key3 through the reorganization but then relinquish his spot as chief executive.

The company was launched in 2000 as a spinoff from Japanese Internet and media conglomerate Softbank Corp. That transaction saddled Key3 with more than $400 million in debt, of which $290 million remains outstanding, according to Key3.

Softbank, which owned 53.5% of Key3’s stock, sold all its shares to Triax Holdings for just $2 on Dec. 20, four days after Key3 announced that it couldn’t make a scheduled interest payment on its debt.

Rosen and Chief Operating Officer Jason Chudnofsky sold all their Key3 shares in September, when they were worth about 3 cents each.

Todd Morgan, managing director of high-yield debt research for CIBC World Markets investment bank, said Key3 has several strong brands in the trade show business, which will get a boost when the technology industry recovers.

The trade show business “can get restructured and further downsized,” he said, leaving Weisel “extremely well positioned.”