Penthouse, a men's magazine founded by Bob Guccione, combines urban lifestyle articles and soft-core pornographic pictorials that, in the 1990s, evolved into hardcore. Penthouse is owned by Penthouse Media Group, Inc. formerly known as General Media, Inc. whose parent company was Penthouse International Inc. prior to chapter 11 restructuring. Although Guccione is American, the magazine was founded in 1965 in the United Kingdom, but beginning in 1969 was sold in the United States as well. At the height of his success, Guccione was considered to be one of the richest men in the United States. He was once listed in the Forbes 400 ranking of wealthiest people (1982-$400 million net worth[3]). According to an April 2002 New York Times article that quoted Guccione saying Penthouse grossed $3.5 billion to $4 billion over the 30-year life of the company, with net income of almost half a billion dollars.[4]
For many years, Penthouse fell between Playboy and Hustler in terms of its explicitness and general attitude toward sexual depictions, with Playboy being visually softer and less focused on female genitals and with Hustler going for a raunchier look and content often consisting of toilet humor. Almost from the start, Penthouse pictorials showed female genitalia and pubic hair when this was considered by many to be obscene.
Up until 1974, the depiction of female genitalia offered fuzzy portrayals of the pudenda, without the inner labia parted, after which sharper views of the vulva were shown.
Simulated sex, but not penetration or male genitalia, followed; then, several years later, male genitalia, including erections, could be seen. In addition, Penthouse attempted to maintain some level of reading content, although usually of a more sexually oriented nature than Playboy.
Up until 1974, the depiction of female genitalia offered fuzzy portrayals of the pudenda, without the inner labia parted, after which sharper views of the vulva were shown.
Simulated sex, but not penetration or male genitalia, followed; then, several years later, male genitalia, including erections, could be seen. In addition, Penthouse attempted to maintain some level of reading content, although usually of a more sexually oriented nature than Playboy.
In 1998 Penthouse decided to change its format and began featuring sexually explicit pictures (i.e., actual oral, vaginal and anal penetration). It also began to regularly feature pictorials of female models urinating, which, until then, had been considered a defining limit of illegal obscenity as distinguished from legal pornography.
A different approach to restoring sales was attempted by the UK version of the magazine in 1997. Under the editorship of Tom Hilditch, the magazine was rebranded as PH.UK and relaunched as middle-shelf "adult magazine for grown-ups". Fashion photographers (such as Corinne Day of The Face magazine) were hired to produce images that merged sex and fashion. The magazine's editorial content included celebrity interviews and tackled issues of sexual politics. The experiment attracted a great deal of press interest but failed to generate a significant increase in sales. PH.UK closed in late 1998.
The new owners (see below) significantly softened the content of the magazine starting with the January 2005 issue. Penthouse no longer showed male genitalia, real or simulated male-female sex, or other explicit hardcore content. (It does still feature female-female simulated sex, at least on occasion.) While this change allowed the return of a limited number of mainstream advertisers to the magazine, it has not significantly raised the number of subscribers; total circulation is still below 350,000.[5] Some critics have even suggested that the softening of content may have hurt sales[citation needed][dubious – discuss].
A different approach to restoring sales was attempted by the UK version of the magazine in 1997. Under the editorship of Tom Hilditch, the magazine was rebranded as PH.UK and relaunched as middle-shelf "adult magazine for grown-ups". Fashion photographers (such as Corinne Day of The Face magazine) were hired to produce images that merged sex and fashion. The magazine's editorial content included celebrity interviews and tackled issues of sexual politics. The experiment attracted a great deal of press interest but failed to generate a significant increase in sales. PH.UK closed in late 1998.
The new owners (see below) significantly softened the content of the magazine starting with the January 2005 issue. Penthouse no longer showed male genitalia, real or simulated male-female sex, or other explicit hardcore content. (It does still feature female-female simulated sex, at least on occasion.) While this change allowed the return of a limited number of mainstream advertisers to the magazine, it has not significantly raised the number of subscribers; total circulation is still below 350,000.[5] Some critics have even suggested that the softening of content may have hurt sales[citation needed][dubious – discuss].
Penthouse’s parent company became General Media Inc in 1993 in connection with the company going public in December 21, 1993, in an $85 million United States Securities and Exchange Commission (SEC) registered bond offering. Jefferies and Company led the junk bond offering (Jefferies is a leading middle-market investment bank listed on the New York Stock Exchange). The main buyer of the bonds was the $40 billion MacKay Shields division of the venerable $143 billion New York Life insurance company.
The collateral for the bonds was primarily the registered trademarks of the company and other intellectual property, since the “Penthouse” brand is a worldwide recognized brand and would be difficult and expensive to recreate.
In 1997, Cerberus Capital Management began acquiring the General Media bonds in the open market. Cerberus is one of the largest hedge funds in the United States, with a reported $18 billion under management.
In an effort to raise cash and to reduce debt, Penthouse sold its portfolio of several automotive magazine titles in 1999 for $33 million cash to Peterson Automotive, the national automotive-publishing group. While these titles were successful, it is widely reported that the science and health magazines Omni and Longevity, cost Penthouse almost $100 million, contributing to its eventual financial troubles.
Guccione and his trust remained the sole shareholder of General Media, according to SEC filings, despite the bondholder obligations. In October 2002, he agreed to take on his first minority shareholders in 37 years. Affiliates of Jason Galanis and Charles Samel acquired 15% of the company, according to SEC filings (affiliates later acquiring 100% in November 2003, according to filings). In October, 2002, General Media became a wholly owned subsidiary of Penthouse International (f/k/a American Pulp).[6][7]
In May 2007, the SEC settled a suit brought against Galanis and Samel for alleged fraud and financial misreporting. In the settlement, no guilt was admitted, while the settlement resolves the SEC's accusations that General Media used an unauthorized electronic signature of Bob Guccione, the magazine's former chief executive officer, to meet Sarbanes-Oxley-law certification requirements in its 2003 first-quarter report[8].
The collateral for the bonds was primarily the registered trademarks of the company and other intellectual property, since the “Penthouse” brand is a worldwide recognized brand and would be difficult and expensive to recreate.
In 1997, Cerberus Capital Management began acquiring the General Media bonds in the open market. Cerberus is one of the largest hedge funds in the United States, with a reported $18 billion under management.
In an effort to raise cash and to reduce debt, Penthouse sold its portfolio of several automotive magazine titles in 1999 for $33 million cash to Peterson Automotive, the national automotive-publishing group. While these titles were successful, it is widely reported that the science and health magazines Omni and Longevity, cost Penthouse almost $100 million, contributing to its eventual financial troubles.
Guccione and his trust remained the sole shareholder of General Media, according to SEC filings, despite the bondholder obligations. In October 2002, he agreed to take on his first minority shareholders in 37 years. Affiliates of Jason Galanis and Charles Samel acquired 15% of the company, according to SEC filings (affiliates later acquiring 100% in November 2003, according to filings). In October, 2002, General Media became a wholly owned subsidiary of Penthouse International (f/k/a American Pulp).[6][7]
In May 2007, the SEC settled a suit brought against Galanis and Samel for alleged fraud and financial misreporting. In the settlement, no guilt was admitted, while the settlement resolves the SEC's accusations that General Media used an unauthorized electronic signature of Bob Guccione, the magazine's former chief executive officer, to meet Sarbanes-Oxley-law certification requirements in its 2003 first-quarter report[8].
Per SEC filings, General Media defaulted on a [$1.3 million] payment on its $50 million in outstanding bonds. As a result, the bondholders had a right to take control of the company unless General Media sought protection under the federal bankruptcy laws.[9]
On August 12, 2003, General Media, the parent company of the magazine, filed for Chapter 11 bankruptcy protection. Immediately upon filing, Cerberus Capital management entered into a $5 million debtor-in-possession credit line with General Media to provide General Media working capital.[10][11] In October 2003, it was announced that Penthouse magazine was being put up for sale as part of a deal with its creditors. On November 13, 2004, Guccione resigned as Chairman and CEO of Penthouse International, the parent of General Media.
General Media later filed a plan of reorganization that ceded control to the bondholders, but then withdrew this plan and filed a new plan that would have resulted in the equity holders maintaining control of the company.[12] Also, the parties acquired the Guccione mansion from the foreclosing lenders and reached agreement with Guccione to lease him the home for $1 per year for the rest of his life.[13]
Given the enormous recognition for the Penthouse brand, financier Marc H. Bell, a high-net-worth South-Florida real-estate developer and founder of the Globix Corporation, a once-public Internet-hosting company, formed a partnership for the acquisition, called it PET Capital Partners (as in, "pet of the month")[14] then led his team in amassing 89 percent of the magazine's $50 million in bond obligations. "We didn't buy the company, we bought the debt," says Bell.
The bankruptcy challenges between the bondholders and the shareholders continued through four official plans of reorganization and substantial litigation. Ultimately, the bondholder plan of PET Capital Partner group was confirmed by the Court. However, the plan could not close without the settlement of the outstanding litigation between the parties.
On September 28, 2004, the Molina parties agreed to dismiss their claims and consent to the transaction. According to SEC filings, simultaneously Care Concepts paid PET Capital Partners $16.45 million[15] in cash for 39.3% of Penthouse Media Group.[16] Penthouse International paid an additional $1,000,000. Molina released his claims in consideration for return of a $10 million promissory note due to PET Capital Partners.
On October 4, 2004, General Media emerged from bankruptcy and was renamed the Penthouse Media Group. It is now owned by three investors: Bell, Daniel Staton, a South-Florida investor with diverse investment properties, ranging from Broadway shows to Build-a-Bear stores, and a member of the board of directors of Public Storage, Inc., (NYSE: PSA), and Absolute Capital Management, run by Florian Homm, a German hedge-fund manager, who lives on the Spanish island of Majorca. Bell was reportedly solicited for capital by an officer of General Media but elected to buy the bonds and attempt to foreclose.[17] Bell was quoted in South Florida CEO Magazine in June 2004 as saying "They were in bankruptcy, their bonds were trading for pennies and nobody wanted the company," says Bell. "It was going to be liquidated and we figured it was a great buy.
In August 2005, PET Capital Partners completed a financing with each of Post Advisory, Canyon Capital, and Satellite for $40 million. According to SEC-filed documents dated August 31, 2005, signed by Marc Bell as President, Jefferies and Company represented Penthouse in the private placement of new debt. According to the filing, payments were made to directors and officers of $14,502,901 and “payments to others” were $11,710,965.38, leaving the company with working capital of $11,441,218.59.
On August 12, 2003, General Media, the parent company of the magazine, filed for Chapter 11 bankruptcy protection. Immediately upon filing, Cerberus Capital management entered into a $5 million debtor-in-possession credit line with General Media to provide General Media working capital.[10][11] In October 2003, it was announced that Penthouse magazine was being put up for sale as part of a deal with its creditors. On November 13, 2004, Guccione resigned as Chairman and CEO of Penthouse International, the parent of General Media.
General Media later filed a plan of reorganization that ceded control to the bondholders, but then withdrew this plan and filed a new plan that would have resulted in the equity holders maintaining control of the company.[12] Also, the parties acquired the Guccione mansion from the foreclosing lenders and reached agreement with Guccione to lease him the home for $1 per year for the rest of his life.[13]
Given the enormous recognition for the Penthouse brand, financier Marc H. Bell, a high-net-worth South-Florida real-estate developer and founder of the Globix Corporation, a once-public Internet-hosting company, formed a partnership for the acquisition, called it PET Capital Partners (as in, "pet of the month")[14] then led his team in amassing 89 percent of the magazine's $50 million in bond obligations. "We didn't buy the company, we bought the debt," says Bell.
The bankruptcy challenges between the bondholders and the shareholders continued through four official plans of reorganization and substantial litigation. Ultimately, the bondholder plan of PET Capital Partner group was confirmed by the Court. However, the plan could not close without the settlement of the outstanding litigation between the parties.
On September 28, 2004, the Molina parties agreed to dismiss their claims and consent to the transaction. According to SEC filings, simultaneously Care Concepts paid PET Capital Partners $16.45 million[15] in cash for 39.3% of Penthouse Media Group.[16] Penthouse International paid an additional $1,000,000. Molina released his claims in consideration for return of a $10 million promissory note due to PET Capital Partners.
On October 4, 2004, General Media emerged from bankruptcy and was renamed the Penthouse Media Group. It is now owned by three investors: Bell, Daniel Staton, a South-Florida investor with diverse investment properties, ranging from Broadway shows to Build-a-Bear stores, and a member of the board of directors of Public Storage, Inc., (NYSE: PSA), and Absolute Capital Management, run by Florian Homm, a German hedge-fund manager, who lives on the Spanish island of Majorca. Bell was reportedly solicited for capital by an officer of General Media but elected to buy the bonds and attempt to foreclose.[17] Bell was quoted in South Florida CEO Magazine in June 2004 as saying "They were in bankruptcy, their bonds were trading for pennies and nobody wanted the company," says Bell. "It was going to be liquidated and we figured it was a great buy.
In August 2005, PET Capital Partners completed a financing with each of Post Advisory, Canyon Capital, and Satellite for $40 million. According to SEC-filed documents dated August 31, 2005, signed by Marc Bell as President, Jefferies and Company represented Penthouse in the private placement of new debt. According to the filing, payments were made to directors and officers of $14,502,901 and “payments to others” were $11,710,965.38, leaving the company with working capital of $11,441,218.59.
