Getty Images blames investor lawsuits for bankruptcy

Getty Images filed for Chapter 11 bankruptcy in Delaware on Wednesday, October 21. The prepackaged process is meant to take the photo agency private and wipe out its public shareholders. According to CNBC Comcast Corporation ↗ 3.44%, affiliates of the Getty family and Koch Equity Development have committed up to $533 million in new equity and will own 100% of the company once the restructuring is complete. Getty listed both its assets and its liabilities in the range of $1 billion to $10 billion.reuters.com

The filing puts into effect a restructuring support agreement announced on October 12. Reuters Thomson Reuters Corporation ↗ 6.94% described that agreement as a major reset after Getty's planned merger with Shutterstock ↗ 3.73% fell apart amid heavy debt and growing competition from AI-generated imagery.sec.gov

Terms of the plan

In its press release, Getty said it has started a solicitation process to get formal approval for the plan. It said it will keep "operating in the ordinary course" and expects no impact on contributors, customers, employees or vendors. An affiliate of Koch Equity Development will provide up to $143 million in financing, and Getty expects to emerge as a private company by year-end once regulators sign off. Chief executive Craig Peters called the filing "a procedural step to implement the financial restructuring previously announced," The Next Web reported.sec.gov+1

Under the October 12 agreement, holders of 83.5% of Getty's unsecured bonds agreed to retire $270 million of senior notes. Holders of about 89% of its secured debt agreed to lower interest costs and extend maturities. EconoTimes reported that the unsecured noteholders would share about $170.2 million in cash. It also reported that the $533 million figure includes bankruptcy financing and roughly $100 million of existing investor debt being converted into equity, so not all of it is new cash.newsroom.gettyimages.com+1

Litigation pushed it over the edge

At a hearing in Wilmington on Thursday, Getty attorney Brian Schartz said about $200 million in judgments from investor disputes helped speed the company into bankruptcy, Reuters reported. He added that Getty could face up to $275 million in further liabilities. Investors sued after Getty blocked them from exercising warrants at $11.50 per share while the stock briefly traded near $32. Getty paid $110 million in April after losing in court, and it could not afford to post a bond to appeal a separate $92 million judgment.reuters.com

According to Reuters, Getty entered bankruptcy with $1.46 billion in debt and just $20 million in cash, even though it had $978 million in revenue over the past 12 months. The company also pointed to its abandoned $3.7 billion Shutterstock merger. The deal collapsed after the UK competition regulator required Shutterstock to sell its editorial business as a condition for approval.

Shareholders, whose stakes will be cancelled, plan to ask the court for an official equity committee. "Thus far, defending those claims outside of bankruptcy court has not swung in the company's favor," Schartz told Judge Kate Stickles, Reuters reported.reuters.com