McClatchy Co. won concessions from banks that spared the newspaper company from a threat of default on its debt.
The publisher of the Sacramento Bee and Miami Herald said Friday its banks agreed to loosen restrictions on the company's level of debt compared to cash flow, and its ratio of interest payments to cash flow.
Analysts had said McClatchy needed to secure the changes by Sept. 30, or the company risked a technical default on its debt. A default notice could trigger a bankruptcy-court filing.
McClatchy said it believed "the impact of the current environment on our cash flows" made it necessary to amend its bank agreement. "There were no internal projections indicating we would be in default in the third quarter," a McClatchy spokeswoman said.
Like nearly all newspaper companies, McClatchy has suffered from a steep downturn in advertising revenue as the economy cools and as marketers continue to shift advertising to the Internet. McClatchy's pains are exacerbated by about $2.1 billion in debt, much of it tied to the company's purchase of publisher Knight Ridder Inc. in 2006.
Worries about possible bank defaults have helped crush the company's stock price, which has dropped 77% in the last year. McClatchy's credit rating is deep into junk territory.
The announcement about the amended credit agreement came after the close of regular market trading. McClatchy shares rose 5.9% to $4.50 at 4 p.m. on the New York Stock Exchange, with much of the rally in the last hour of trading.
The company continues faithfully to pay interest on its debt, though falling revenue means McClatchy has been tiptoeing near covenant limits on its bank debt. The covenants currently limit McClatchy's debt to five times its adjusted cash flow. The ratio was just under 4.5 times at the end of the second quarter. Under the new agreement, the ratio can now go as high as 6.25 through the fourth quarter.
