Gillett was also a bad investment.
By late 1989, Gillett Holdings was in trouble: George Gillett sold WSMV-TV for $125 million and used most of the proceeds to pay down bank loans. He astutely avoided capital gains taxes by selling the station to a minority-controlled entity, Cook-Inlet, but the transaction left $27 million due on the company's financing by August 1990. Meanwhile that fall, Storer Communications defaulted on $153 million in interest on public debt. But rather than force Storer Communications into bankruptcy, Gillett managed to convince bondholders to restructure the subsidiary's more than $500 million bonded debt. The creditors forced Gillett to cut his equity stake in the company from 55 percent to 41 percent, but Gillett maintained control of Storer Communications. He also postponed interest and principal payments on the refinanced debt until 1995, at which point bondholders would be paid in kind, not cash. Gillett considered selling some of the Storer stations, but prices for even the highest-rated affiliates had fallen 30 percent since their purchase.
Storer Communications' financial troubles reflected upward onto Gillett Holdings, which had problems of its own brewing. By 1990 the company's bonds had become so insecure that some traded as low as 17 cents on the dollar. Then, in August, Gillett Holdings defaulted on over $450 million in debt. By February 1991, bondholders frustrated with Gillett's half-hearted attempts at restructuring filed an involuntary bankruptcy petition. When the company failed to meet the resulting court-imposed restructuring deadline of June 25, the company was forced into Chapter 11 bankruptcy. In the meantime, Leon Black, a former director of Storer Communications and co-engineer of the Gillett takeover, purchased large blocks of Gillett Holdings stock through his investment vehicle, Apollo Advisers. The purchases gave Black the leverage to block any restructuring schemes of which he didn't approve.
Wrangling over restructuring of Gillett Holdings between Black and Gillett culminated in a January 1992 plan. Ownership of Gillett Holdings' three remaining television stations was transferred to the bondholders and Gillett himself lost control of the company, although he maintained a 40 percent nonvoting stake in Storer Communications. The plan also stipulated that George Gillett would continue to manage the television stations at a minimum salary of $30,000 weekly. The restructuring plan proposed to cut Gillett Holdings' $1.2 billion debt in half, as Leon Black offered to forgive debt in his control and contribute $40 million cash to jumpstart the floundering operation in exchange for 52 percent ownership of the new company.
At that point, however, yet another takeover mogul stepped into the picture. Carl Icahn had purchased $65 million in low-ranking junk bonds, and had earned a small voice in the restructuring plans. Unhappy with the 10 cents on the dollar he and other bondholders in his class were offered in the original plan, Icahn made public and private complaints that eventually earned him 16 cents and at least 15 percent of the restructured Gillett Holdings' equity.
By April 30, 1992, a plan was submitted to Federal Bankruptcy Court that was revised to reduce Gillett Holdings' debt by $75 million and rescind George Gillett's options to repurchase stock and buy back specified corporate assets. That same day, lawyers for Gillett Holdings filed 44 bankruptcy cases, placing nearly all of the conglomerate's subsidiaries under court protection.
By late 1992, as Gillett Holdings looked forward to its emergence from bankruptcy court, Storer Communications defaulted on a $140 million principal repayment that threatened to cast the subsidiary into Chapter 11 as well. George Gillett himself was not immune to the "bankruptcy bug," either: In August he filed for personal bankruptcy, losing his collection of 30 sports cars and a 235,000-acre Oregon ranch in the process. However, the still-savvy entrepreneur managed to protect his $1.5 million annual salary, $5 million in Gillett Holdings securities, and $125,000 per year in life insurance premiums.
