Advanced Marketing Services announced Friday that it had filed for Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. The company said it took the action after its bank, Wells Fargo, refused to extend its loan agreement beyond December 28, depriving the company of operating funds. Up until this point, Wells Fargo has routinely extended the credit agreement though AMS has been in violation of certain lending covenants, which include the distributor's inability to file updated financial information for fiscal year 2004 and beyond.

In its release, AMS said that it has explored a number of alternatives to strengthen its financial base and resolve past legal and regulatory issues during the past several months, but that no agreements had been reached. AMS CEO Gary Rautenstrauch told PWit was not clear why the bank had now decided not to issue another loan extension. Rautenstrauch added that he wasn't sure when the updated filings would be made; earlier this year he thought filings for fiscal 2004 would be completed soon. He said there has been "no recent activity" in the long-running FBI investigation into AMS's advertising accounting practices.

In its bankruptcy petition, AMS reported liabilities of over $100 million and assets of more than $100 million. Its top unsecured creditor is Random House, which is owed $43.3 million. Simon & Schuster, Penguin and Hachette Book Group are all owed more than $20 million each, while HarperCollins is owed $18 million. The bankruptcy filing includes PGW; among the clients owed money are Rich Publishing ($4.4 million), Avalon Publishing ($2.3 million), New World Library ($1.1 million) and Grove/Atlantic ($1.1 million). Although the bankruptcy filing says money will be available to pay unsecured creditors, Rautenstrauch said at this point he wasn't sure how much unsecured creditors will be paid. It is also not clear when any payments will be made.

To keep the company operating, AMS has secured $75 million in debtor-in-possession financing from Wells Fargo Foothill. The loan agreement should be enough to meet AMS's operating needs until the Chapter 11 restructuring is completed. Rautenstrauch said he expects AMS to continue to conduct business "in the normal course." Rautenstrauch added that AMS will continue to pursue strategic alternatives for the company, which could include the sale of assets.