How Vice Media Went Bankrupt

The digital media company Vice filed for Chapter 11 bankruptcy in May, and new documents disclosed in the proceedings offer a rare glimpse into the financial maneuvering that led the privately held company to insolvency. In particular, they reveal that Vice raised more than $1.3 billion in debt and equity financing using at least eight fundraising vehicles since 2017—often to compensate for a near-constant cash deficit. The strategy, in conjunction with a shifting media and financial landscape, left the company in precarious financial health, which gave out when a key payment failed to materialize in January. After generating $258 million in gross revenue in 2022, the company now struggles to pay utility bills and severance to former staff. “By the end, Vice was just pouring water into a leaky bucket, and there was no tape in sight,” said media analyst and Workweek founder Adam Ryan. “You can buy time with capital, but those last 18 months seem like throwing money in the toilet.” Faster, Shorter and Electric: Media CROs Reset Ad Expectations for the Second Half of 2023 The fate of the company represents the end of a decade-long experiment in digital media whose core hypotheses—the value of platform-enabled scale, in particular—have since been proven false, according to interviews with media and financial analysts. Rather than an anomaly, the company and its collapse are the inevitable byproducts of a business model built on false assumptions. Below, drawing from the summary provided by chief restructuring officer Frank A. Pometti, outlines how the company came to find itself $834 million in debt. A representative for Vice declined to comment. Saddled by an early and increasing debt load Although Vice was founded in 1994, its path to bankruptcy began in 2017, according to Pometti. That year, the company raised $400 million in equity financing, but the capital expenditure of its business—Vice employed 1,300 employees in 20 global offices—soon forced it to seek fresh capital. Over the next few years, this pattern would repeat itself, as Vice routinely failed to generate enough revenue to outpace its expenses. “Like many other growth companies in the media and technology sectors, Vice has been cash flow negative for the past several years,” Pometti wrote. “As a result, Vice relied on external funding, raising both debt and equity capital to fuel its rapid growth and to fund expenses in certain parts of its businesses.” In 2019, the company raised $250 million in debt financing, and the following summer, it raised an additional $74 million through stock issuance. In May 2021, in part to finance its exploration of joining the public markets via a special purpose acquisition company, the company raised $25 million in bridge notes. And in August 2021, it raised an additional $110 million in equity financing. Exploring a sale By spring 2022, despite its repeated infusions of capital, the company again found its cash supply dwindling. On top of a contracting ad market, Vice also faced the looming maturity—in December—of one of its largest loans. The urgency of the situation moved the company to sell itself. Initially, Vice considered selling either the entire company or its constituent parts—particularly Vice Studios and ad agency Virtue—but by the summer, it began focusing solely on offers for the whole business. During this period, between February and November 2022, Vice again had to raise capital to address cash shortfalls, this time generating $329 million through a series of shareholder loans. While the volume of debt the company raised was extensive, debt financing can be an effective tool if a company believes an exit event is imminent, according to a financial analyst familiar with the matter. So long as Vice sold itself, its mounting debt was not a problem. However, while these outreach efforts garnered two serious bidders and a series of advanced negotiations, by late 2022, the discussions had ended. Forbearance and debt obligations In December, with no sale in sight, the $250 million loan the company had raised in 2019 reached maturity, and Vice was unable to pay it. This default triggered a series of penalties, including an increase in its interest rates. To buy time, Vice entered, lapsed and reentered three consecutive forbearance agreements, each extending its payment timeline. For Digital Publishers, Ad-Supported News Remains an Unsolved Puzzle As the company grew more desperate to sell itself, it again faced a cash shortfall and in the spring, raised $57 million in debt. This loan was related to the 2019 loan, and the two, when combined with the interest-rate hikes from its December default, eventually totaled $475 million. This $475 million loan joined the $329 million loan Vice raised in 2022, a $9.8 million loan from JPMorgan Chase and a $21 million loan related to its acquisition of Pulse Films to comprise the bulk of its outstanding debt. In total, by May, Vice owed $834 million. Vice World News collapses, and Vice declares bankruptcy By this point, the company's financial flexibility had grown so constricted that a missing payment from a key vendor triggered its collapse. For years, the company had relied on its Vice World News operation to provide reliable revenue, and in 2022, it generated $134 million. However, when the primary commissioner of Vice World News content, a company called GMNC, failed to provide a $34 million payment in January, Vice found itself in a cash shortfall. Following a back and forth, GMNC agreed to pay Vice $50 million to terminate its contract. However, to stay liquid in the interim, Vice secured an additional $60 million loan. Despite these measures, the episode derailed the company, and on April 27, Vice shut down Vice World News, eliminating more than 100 jobs in the process. Many of the affected staff have yet to receive severance. Publishers Turn to Livestreaming to Once Again Tap Video Budgets The next day, April 28, Vice awarded 11 executives over $1.13 million in bonuses. The payouts, revealed in separate court documents, were first reported by The Media Mix. Days later, on May 5, a legal judgment filed against Vice by a creditor restrained its ability to move money and froze its accounts with JPMorgan Chase, effectively cutting off its access to cash. On May 15, Vice Media filed for Chapter 11 bankruptcy, and it is now in the midst of a court-supervised sales process. The company—once worth $5.7 billion—could sell for as little as $225 million.

Digital Transformation

How Vice Media Went Bankrupt

New documents reveal a yearslong slide into increasing financial desperation

Mark Stenberg

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Mark Stenberg