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Tribune is extreme, but more bankruptcies possible

NewspapersCompanies and CorporationsBankruptcyFinancially Distressed CompaniesPropertyNewspaper and MagazinePhiladelphia (Philadelphia, Pennsylvania)

Although Tribune Co. has the distinction of being the first major newspaper publisher to seek bankruptcy protection in this sour economy, it is hardly alone in facing the deadly combination of high debt and declining advertising revenue.

For a sense of who might be next, consider publishers that have put individual papers up for sale or have had trouble meeting their debt contracts.

Analysts said Tuesday that most publishers fall into that category. The exceptions often cited: Gannett Co., whose $4 billion in debt is reasonable for its size even though its revenue has shrunk, and McClatchy Co., which in September bought about two years of flexibility on $2 billion in debt by agreeing to higher interest rates.

Advertising revenue has been falling across the board. Losses from the shift of readers to the Internet were exacerbated this year as consumers and advertisers alike pulled back spending in a deepening recession. Although most papers have remained profitable, they have counted on generous cash flows to pay interest and principal on loans.

Tribune, with $13 billion in debt, filed for bankruptcy protection Monday as it sought more time to put its finances in order.

The company, which owns the Los Angeles Times, Chicago Tribune, The Sun of Baltimore along with other dailies, broadcast properties and the Chicago Cubs, had unusually high debt and was considered "an extreme case," said Rick Edmonds, media analyst with the Poynter Institute in St. Petersburg, Fla.

Yet Tribune's filing left him with one big question: "Does it mean they are one of a kind or just the first?"

Long before Tribune sought bankruptcy protection in a Delaware court, Journal Register Co. was considered a likely candidate.

With nearly $650 million in debt, the publisher of the New Haven (Conn.) Register and other dailies has been operating under a forbearance agreement with lenders, currently set to expire Jan. 16. After that, lenders could prompt a default if the company misses payments.

Last month, the Yardley, Pa.-based company said it would close The Herald of New Britain and The Bristol Press in Connecticut if a buyer isn't found by Jan. 12. Eleven Connecticut weeklies are also on the market. Papers in Michigan and the Philadelphia area also might be sold, but the company didn't provide details.

A few newspaper companies already have missed payments.

The Star Tribune of Minneapolis skipped a $9 million quarterly debt payment in September to conserve cash. Around the same time, the investor group that owns The Philadelphia Inquirer and the Philadelphia Daily News skipped an unspecified interest payment in an apparent bid to force lenders to renegotiate.

Officials with Journal Register, the Star Tribune and the Philadelphia papers did not immediately return messages left late Tuesday.

Other publishers have begun talks with lenders to win flexibility on required financial targets that are more difficult to meet as revenue shrinks, even if debt itself does not increase and a company continues to make basic payments.

Those chains include Freedom Communications Inc., which owns The Orange County Register in Southern California, and Media General Inc., which publishes the Richmond Times-Dispatch in Virginia. Failure to win new terms could prompt companies to miss required targets, leading to technical default.

Morris Publishing Group LLC, which publishes The Florida Times-Union and 12 other dailies, said in October it won some flexibility on its targets, but the new terms put pressure on Morris to sell assets to generate cash or to find someone else willing to back its loans. Bond analyst Mike Simonton at Fitch Ratings said failure to find a buyer, in a poor market for such sales, could bring Morris back to the brink next year.

Freedom officials said its negotiations were continuing and declined further comment beyond a statement that said the company was pursuing strategic initiatives so it could "continue serving its communities for many years to come."

Morris and Media General officials did not immediately return messages left late Tuesday. But during a conference call in October, Media General Chief Financial Officer John Schauss said his company launched talks with lenders out of concern it might narrowly miss lender-imposed financial targets based on its long-term forecasts. The company has been selling broadcast stations to generate cash to pay down debt, which stood at $750 million on Sept. 30, down from nearly $900 million at the start of the year.

McClatchy, A.H. Belo Corp. and Lee Enterprises Inc. are among the newspaper publishers that have successfully negotiated new terms, giving them some breathing room.
The new terms were especially important for McClatchy, which took on significant debt as part of its 2006 purchase of the Knight Ridder newspaper group. It is one of the largest U.S. publishers and owns The Sacramento (Calif.) Bee and The Miami Herald.

"It gives us headroom and cushion in a downturn," McClatchy Chief Executive Gary Pruitt said in an interview at the UBS media conference Tuesday.

Pruitt said he was "saddened" by Tribune's bankruptcy filing, but "it doesn't affect us at all. We're in a very different situation."

Besides having lower debt relative to cash flow, compared with Tribune, McClatchy has more time to pay it off. A $40 million payment is due early next year; most remaining debt isn't due until 2011, company officials say. (Pruitt declined comment on reports that McClatchy is seeking to sell the Herald to generate cash.)

By contrast, Tribune had a $593 million payment due in June, and selling the Cubs and other sports properties to raise money became difficult in a tight credit market.

Gannett's strength comes in part from having a strong brand in USA Today, one of the few papers with stable circulation. Dave Novosel, senior bond analyst with the Gimme Credit research firm, said that compared with Tribune, Gannett "has much lower debt and is producing pretty decent cash flow."

Another publishing company that would seem to be in better shape is The New York Times Co., given its flagship paper, which also runs the No. 1 newspaper Web site.
But the Times company has a $400 million credit agreement expiring next year and plans to borrow up to $225 million against its value of its new headquarters building to help pay it off. During the UBS conference Tuesday, Times Chief Financial Officer James Follo said the company expects to be able to get the refinancing it needs despite tough conditions.

The Tribune bankruptcy could have ripple effects in the industry, by making new financing more difficult or more expensive for the Times and other publishers, Simonton said. That's because default on loans is seen as more likely; Fitch Ratings estimates that Tribune's senior lenders could get 30 to 50 cents on the dollar, while other creditors could get nothing as part of Tribune's reorganization.

He said bankers also may hold out for more concessions in renegotiating debt agreements with such companies as Freedom and Media General, giving them little choice but to seek bankruptcy protection.

"A large-scale bankruptcy like this is evidence," he said, "that the default risk across the space could be very high."

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