The financial turmoil is adding headaches for troubled newspaper publishers.The Star Tribune said Wednesday it skipped a debt payment as the Minneapolis newspaper tries to restructure $430 million in borrowings. Publisher Chris Harte indicated the company is testing all options with its lenders.
Gannett Co., the country's largest newspaper publisher, meanwhile said Wednesday it had tapped its credit line as short-term financing markets stall. And alternative weekly publisher Creative Loafing Inc. filed for Chapter 11 this week.
The Star Tribune of Minneapolis is skipping a payment to lenders as it tries to restructure its debt.
The credit crunch has further weakened newspaper publishers, which already are reeling from a prolonged drop in advertising revenue. Several major chains, including Tribune Co., MediaNews Group Inc. and McClatchy Co., have significant debt loads. As debt conditions sour, interest rates will go up for many papers, and lenders will impose onerous conditions. Some publishers risk default or even a trip into bankruptcy court.
Of the major publishers, The Star Tribune may be closest to testing the waters. Last year, private-equity firm Avista Capital bought the paper from McClatchy for $530 million. The paper missed a debt payment in June, and skipped a $9 million quarterly payment this week to conserve cash as it continues to work with lenders to give it breathing room on its debt. Mr. Harte told employees the tightening credit markets are complicating the restructuring process.
The good news is that banks -- many facing their own troubles -- are expected to cut newspaper companies some slack on debt terms. The alternative may be taking over newspapers, something many banks won't stomach. For one thing, newspapers are a tough sell in current conditions.
"We think it's more likely that value is maximized if newspapers are operated as a going concern rather than being liquidated," Fitch Ratings analyst Mike Simonton said.
Even if banks rework debt for the Star Tribune and other debt-squeezed publishers, tighter credit markets are likely to force higher interest rates and operating limitations. Lenders last week agreed to loosen debt restrictions on McClatchy, publisher of the Miami Herald. In return, McClatchy will pay higher interest rates -- a bump of less than $10 million a year, or about 5%, based on debt levels at the end of June. The banks also mandated limits to dividend payments and use of asset-sale proceeds.
For Tribune, recent rising interest rates could cost the company nearly $100 million more on its nearly $13 billion in debt, according to analysts. Tribune also risks tripping requirements to keep debt levels to under nine times its adjusted cash flow. At the end of the second quarter, the ratio was 8.3. Tribune declined to comment.
Tribune has given itself breathing room in many ways. The company sold assets to pay debt, and a pending auction of the Chicago Cubs baseball team is expected to fetch $1 billion or more. Tribune is relying on the Cubs deal in part to pay off $1.4 billion due next summer, though it's unclear what impact the financial tumult will have on prospective buyers.
As credit conditions tighten, USA Today publisher Gannett moved Wednesday to tap its $3.9 billion in revolving credit facilities. The company's debt is tilted toward commercial paper -- short-term debt with floating interest rates. In recent weeks, the market for commercial paper has dried up.
"Throughout all of this, we've successfully funded ourselves," a Gannett spokeswoman said. Gannett has modest debt levels compared to its cash flow, and the company said tapping the credit line was a precaution. Still, the move was sign of how tight credit conditions are for even the healthiest borrowers. "That doesn't bode well for even weaker companies," said Dave Novosel, an analyst with debt-research firm Gimme Credit.
By: Shira Ovide
Wall Street Journal; October 2, 2008
