A fund affiliated with Chicago real estate tycoon Sam Zell is providing financing that will allow Emmis Communications Corp. to repurchase tens of millions of dollars of its preferred stock at a huge discount—-the latest bid by the heavily leveraged company to gain financial breathing room.

Under the plan announced Friday, the Indianapolis-based media company will repurchase the shares from certain unidentified holders of the preferred stock for less than the current market price of $16 a share.

The preferred stock already is trading at a deep discount, in part because of investor anxiety over the company's heavy debt load. In addition, because of its financial struggles, Emmis has suspended making its quarterly dividend payments on those shares since October 2008. The payments normally would total more than $2.4 million a quarter.

The company has $140 million in preferred stock outstanding. However, based on the current price, those shares are trading for just $42 million.

Even after buying back preferred stock, however, Emmis still would be saddled with hundreds of millions of dollars in long-term debt.

“It’s not like this gets [Emmis] out of the hot water, in terms of their overall leverage situation,” said Mark Foster, chief investment officer of Columbus-based Kirr Marbach & Co. “But it looks like it improves it.”

He added: "The owners [of the preferred stock] may say, 'This is better than nothing. Let's take it and move.'"

In October, Emmis said that for the first six months of its fiscal year, it lost $13.1 million on revenue of $125.8 million, compared with a loss of $6.3 million on revenue of $126.9 million during the same period in 2010.
 
To finance the preferred stock purchases, Emmis is borrowing up to $35 million from Zell, which it will need to pay back by February 2015, at an annual interest rate of 23 percent..

While the interest rate may seem high, Emmis apparently expects to more than offset those costs by reducing its future obligations on the preferred stock.

“There would be a cash-flow savings and an interest savings,” Foster said. “It would appear to make some sense to do.”

Emmis’ struggles to pare down its debt have weighed on the company’s stock price for years.

Company shares traded Friday morning at 86 cents each, up 10 cents from their opening price, perhaps bolstered by the plan to purchase the preferred stock.

In September, the NASDAQ exchange warned Emmis for the third time in two years that its stock could be delisted.
 
The stock had closed below the exchange’s minimum $1-per-share requirement for 30 straight business days. Emmis shares would have to rise to at least  $1 for at least 10 consecutive business days before Feb. 27 to stay in compliance.

Emmis recently completed the sale of three big market radio stations, generating $120 million in cash, with much of it going toward repaying debt. Emmis CEO Jeff Smulyan said in September that he expects the debt reduction will push the stock above $1 again.